JP Morgan's $2 billion loss sends markets lower worldwide
They've got nothing to worry about because they are too big to fail, as we all know. And $2 billion in losses as a result of some bad bets on hedging their position won't break them.
Still, it is disturbing to see the cavalier manner in which these big banks take huge risks, knowing they have the American taxpayer as a backstop.
JPMorgan Chase & Co's shock trading loss of at least $2 billion from a failed hedging strategy knocked financial stocks across the globe on Friday, as well as the reputation of the biggest U.S. bank by assets and its CEO Jamie Dimon.
For a bank lauded for navigating the fallout from the 2008 financial crisis without reporting a loss, the errors are embarrassing, especially given Dimon's criticism of the so-called Volcker rule to ban proprietary trading by big banks.
Dimon conceded the losses, which could rise by a further $1 billion, were linked to a Wall Street Journal report last month about a London-based trader Bruno Iksil, nicknamed the 'London Whale', who, the paper said, amassed an outsized position which hedge funds bet against.
Iksil, who graduated in engineering from the Ecole Centrale in Paris in 1991, was not available for comment. The Frenchman, and the Chief Investment Office (CIO) where he works, are known by rival credit traders for taking extremely large positions.
A friend and former JPMorgan colleague said Iksil and his team were not involved in so-called prop trading, where a bank makes bets with its own money, and its activities were known about at the highest levels.
"The CIO does not do prop trading, let's be clear on that...It involves taking positions in the form of investments, trades, credit-default swaps, or other, with the aim of rebalancing the risks of JPMorgan's balance sheet.
"The information comes from the very top of the bank and I do not even think that the CIO team members at Bruno's level are given the full picture," the ex-colleague said.
The CIO is run by New York-based Ina Drew, who is Chief Investment Officer.
A bank making "bets with its own money" is only a figure of speech. It's only their money if they win. If they lose and go under, it's our money they're playing with.
It's good to be a crony capitalist in 21st century America.