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Thread: JPMorgan’s Trading Loss May Call for More Fed Supervision (Update 1)

  1. #1
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    JPMorgan’s Trading Loss May Call for More Fed Supervision (Update 1)

    http://www.bloomberg.com/news/2012-0...pervision.html

    Anyone still for "Less Regulation"?



    JPMorgan Chase & Co. (JPM)’s trading position that led to a $2 billion loss may call for increased Federal Reserve scrutiny of risk management as the central bank steps up its post-crisis supervision of lenders.

    Fed officials are gathering more information about the trading position, which they have known about for several weeks, according to a person familiar with the matter. They don’t view it as their role to approve or reject individual trades, the person said. Rather, their job is to ensure firms have enough capital to withstand losses, said the person, who wasn’t authorized to discuss the matter and asked not to be identified.

    JPMorgan Chief Executive Officer Jamie Dimon announced the “egregious” trading loss on May 10, saying there were “many errors, sloppiness and bad judgment.” Dimon said on a conference call with analysts that while the firm kept its regulators “up to date,” he “didn’t have great information” to share with them.

    “The fact that Jamie Dimon could come out and make some of those statements” raises “lots of questions about who was watching the store,” said Robert Eisenbeis, chief monetary economist at Sarasota, Florida-based Cumberland Advisors and a former Atlanta Fed research director. The Fed should be “going in and looking at the internal controls and monitoring procedures that the institution is taking, and stress those.”

    Dimon announced the trading loss two months after the biggest U.S. bank by assets passed a Fed stress test that put its loans and securities through a scenario of deep recession and a simulated global financial market shock.

    ‘Small Loss’

    “It’s a relatively small loss in a bank of that size,” said William Isaac, a chairman of the Federal Deposit Insurance Corp. in the 1980s and now a senior managing director at FTI Consulting Inc. “The thing that’s rattling people is JPMorgan Chase is widely considered one of the strongest and best banks in the world.”

    JPMorgan shares fell 9.3 percent, the most in nine months, to $36.96 at the close of trading yesterday in New York. The KBW Bank Index (BKX) of 24 financial stocks was down 1.2 percent.

    Krishna Guha, a spokesman for Federal Reserve Bank of New York, JPMorgan’s regulator, declined to comment. JPMorgan spokesman Joseph Evangelisti also declined to comment.

    The Commodity Futures Trading Commission, the main U.S. derivatives regulator, has been reviewing JPMorgan’s derivatives trading activities since last month, according to a person who was briefed on the matter and spoke on condition of anonymity because the review is private. The CFTC hasn’t opened an enforcement action against the bank, the person said.

    SEC Probe

    The U.S. Securities and Exchange Commission opened a preliminary investigation into JPMorgan’s disclosures related to the trades, according to another person briefed on the probe who spoke on condition of anonymity because the matter isn’t public.

    Dimon, in an interview with NBC’s “Meet the Press” to air tomorrow, said he didn’t know whether the bank had broken any law or accounting rules.

    “We’ve had audit, legal, risk, compliance, some of our best people looking at all of that,” he said. “We don’t know if any of that is true yet.”

    Fed Analysis

    Fed officials need to examine their own analysis of the bank’s risk management procedures and its governance, said Dino Kos, a former executive vice president at the New York Fed. He said Fed supervisors should ask questions about how information on risk is collected and reported, and what is done with it once it reaches the executive level.

    “What information is the board of directors being given? What is being sent to the CEO and the senior managers on the risk committee?” said Kos, now a managing director at Hamiltonian Associates, a New York economic research and consulting firm. “There is a separate question about judgment” if Dimon understood the risks the bank was taking, he said.

    Daniel Tarullo, the Fed governor in charge of supervision, has emphasized that boards need to serve as independent monitors of risk. The stress-tests were focused on whether a bank’s staff and boards can put together a plan to manage capital through times of economic turmoil.

    Checks and Balances

    “It’s exceedingly important for boards to be involved, not in micromanaging, but providing checks and balances on a company,” said Timothy Smith, a senior vice president at Boston-based Walden Asset Management, which manages $2.2 billion. “It’s a fair question to ask if Jamie Dimon says this was just sloppy, where was the board as the $2 billion was being lost?”

    Tarullo has piloted one of the biggest overhauls of financial supervision in the central bank’s history. In addition to annual stress tests, the Fed routinely looks at risks across all large banks in a new group formed from economists, examiners, and computer modelers.

    The Fed has also boosted its surveillance of financial markets and bank lending to spot asset bubbles that may lead to financial turmoil. Chairman Ben S. Bernanke established a new Office of Financial Stability Policy and Research, which was instrumental in shaping tougher guidelines earlier this year on high-yield, high-risk bank loans.

    Fed Letters

    At the end of April, the Fed sent letters critiquing banks on their stress-test performance. Among the red flags Fed officials spotted: the amount of capital that risk managers said one bank might lose in stress test scenarios was at odds with the payouts that the board wanted to make in the form of dividends or share buybacks.

    Peter Wallison, a former member of the Financial Crisis Inquiry Commission, said boards are “neither equipped to understand the scope of a bank’s risks or engaged full-time in the bank’s business.”

    Instead, “What boards can do is appoint a risk committee, to which the bank’s risk manager will report, independently of the CEO. The risk committee can then keep the board apprised of the risks communicated by the risk manager. However, this requires very deft management,” said Wallison, a fellow in financial policy studies at the American Enterprise Institute in Washington.

    Ratings Reduction

    Fitch Ratings, which yesterday lowered JPMorgan’s credit grade by one level to A+ from AA-, said the $2 billion loss “raises questions regarding JPM’s risk appetite, risk management framework, practices and oversight.”

    JPMorgan’s losses weren’t large enough to pose a risk to the bank or the broader financial system, said Robert Engle, a winner of the 2003 Nobel Prize in economics and a professor at New York University’s Stern School of Business.

    JPMorgan’s tier 1 common capital ratio, a measure of capital strength tracked by the Fed, never dipped below 5 percent in the 2012 stress scenario despite a hypothetical $28 billion in trading and counterparty losses and $56 billion in loan losses, according to results of the stress tests released on March 13.

    “I don’t think this particular number is big enough to get in the way of the capital buffers that JPMorgan has,” Engle said of the $2 billion loss.

    Systemic Institution

    “We think of JPMorgan as being one of the more systemic institutions because it is so big,” said Engle, who helped develop a model of systemic risk at the Stern school’s Volatility Institute. “But because it is big, a loss like this is not going to bring it to its knees.”

    The Financial Stability Oversight Council, a group of regulators charged with preventing a financial crisis, wasn’t convened to discuss the JPMorgan loss and has no plans to meet, said a Treasury Department official who declined to be identified. The council’s chairman is Treasury Secretary Timothy F. Geithner, and it includes Bernanke.

    To contact the reporters on this story: Craig Torres at ctorres3@bloomberg.net; Caroline Salas Gage at Csalas1@bloomberg.net

    To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

  2. #2
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    Quote Originally Posted by Buster View Post
    Anyone still for "Less Regulation"?
    Because the massive amount of Regulation in place is so effective, amirite?

    Better, more efficent, more effective regulation, enforced.

    Which, tbqh, is probably "less" than whats on the books now, an endles confusing (and completely ineffective) morass of literally hundreds of thousands of pages or rules and regs, none of which seem to be being enforced at all.

    Anyone for "More of the Same old Ineffective Regulation"?

    Yep, BUSTER is.

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    Quote Originally Posted by Warfish View Post
    Because the massive amount of Regulation in place is so effective, amirite?

    Better, more efficent, more effective regulation, enforced.

    Which, tbqh, is probably "less" than whats on the books now, an endles confusing (and completely ineffective) morass of literally hundreds of thousands of pages or rules and regs, none of which seem to be being enforced at all.

    Anyone for "More of the Same old Ineffective Regulation"?

    Yep, BUSTER is.

    A. Your answer is to fire the police?

    How about a rule if you borrow $2billipn fron the federal reserve you are not allowed to put every last cent of it down on red at the roulette table in Vegas?

    B. It is obvoius you wish to draw me into a personal insult brawl.

    c. Later

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    Quote Originally Posted by Warfish View Post
    Because the massive amount of Regulation in place is so effective, amirite?

    Better, more efficent, more effective regulation, enforced.

    Which, tbqh, is probably "less" than whats on the books now, an endles confusing (and completely ineffective) morass of literally hundreds of thousands of pages or rules and regs, none of which seem to be being enforced at all.

    Anyone for "More of the Same old Ineffective Regulation"?

    Yep, BUSTER is.
    Massive amount of regulation? When?

  5. #5
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    Quote Originally Posted by Buster View Post
    A. Your answer is to fire the police?
    How do you get "fire the Police" from "Better, more efficent, more effective regulation, enforced".

    B. It is obvoius you wish to draw me into a personal insult brawl.
    The only thing that obvious is you're an idiot.

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    Glass-Steagall being repealed.

  7. #7
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    Quote Originally Posted by Buster View Post
    http://www.bloomberg.com/news/2012-0...pervision.html

    Anyone still for "Less Regulation"?
    good they need to have alot more regulations first thing is to make derivatives illegal would be a great place to start.

  8. #8
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    Quote Originally Posted by Warfish View Post
    How do you get "fire the Police" from "Better, more efficent, more effective regulation, enforced".



    The only thing that obvious is you're an idiot.

    See what I'm talking about.

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    Just my opinion, we don't need more regulation, we need smaller banks. Simply put, banks should not be too big to fail, and they should not be too big to erroneously and sloppily lose $2 billion in a hedge investment.

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    Quote Originally Posted by cr726 View Post
    Glass-Steagall being repealed.
    The Paulbots and other clueless know-nothings couldn't begin to tell you how the repeal of Glass-Steagall had anything to do with the 2008 crisis-
    because it didn't.

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    Quote Originally Posted by Jungle Shift Jet View Post
    The Paulbots and other clueless know-nothings couldn't begin to tell you how the repeal of Glass-Steagall had anything to do with the 2008 crisis-
    because it didn't.
    It has as much to do with as does an act passed in 1977 did.

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    JP Morgan was one of the few large banks that didn't need TARP funds and they essentially had to take them because the GOVERNMENT didn't want to single out banks that had financial issues.

    This company had earning of 5.4 Billion in the first quarter. Is a 2 Billion dollar loss for a company of this scale something that should trigger massive government regulation? My guess is probably not but hey they lost money on risky trades so lets panic and create more reasons companies shouldn't be able to make and lose money.

    If the issue is to big to fail, break them up.

    The same Congress and two Presidents in a row have railed against to big to fail why they have have helped create the largest banks with the least competition ever. I wouldn't trust Republicans or Democrats to have a clue about to big to fail or government regulation of banks. Monopolies can be broken up under current law. If the banks are a cartel that put our financial health at risk break them up. Regulation is more likely to reduce competition and hurt consumers something that has allready occured because of the actions of 2 Presidents and a Democratic controlled Congress. Don't forget banks donate money and lobby Congress in a bi-partisan way. Any legislation is likely to make big banks more powerful not less powerful.

    Those calling for regulation should be looked at as supporters of large institutions that help protect big business at the expense of everyone else. If fill in the name of Lib had called for breaking up the banks I would be impressed. Libs calling for bank regulation right before a general election seems like a shake down of big business at the expense of consumers.
    Last edited by Winstonbiggs; 05-14-2012 at 08:54 AM.

  13. #13
    Two billion is a drop in the bucket for JPM.
    How much was lost on GM?
    Big companies lose money all the time.

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    Quote Originally Posted by Warfish View Post
    Because the massive amount of Regulation in place is so effective, amirite?

    Better, more efficent, more effective regulation, enforced.

    Which, tbqh, is probably "less" than whats on the books now, an endles confusing (and completely ineffective) morass of literally hundreds of thousands of pages or rules and regs, none of which seem to be being enforced at all.

    Anyone for "More of the Same old Ineffective Regulation"?

    Yep, BUSTER is.
    What??? Is there something wrong with the SEC investigator being related through marriage to Madoff?

    My buddy worked for the SEC in NY. Said they are the most unprofessional group he has ever seen, RAN FOR THE DOOR at 5pm.

    Yeah..more government is whats needed.

  15. #15
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    Quote Originally Posted by Buster View Post
    See what I'm talking about.
    No, what I see is a guy who takes "Better, more efficent, more effective regulation, enforced" and replies with an utterly ignorant reply such as "Your answer is to fire the police?"

    Don't blame me that you totally and completely failed to understand basic english.

  16. #16
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    Quote Originally Posted by Winstonbiggs View Post
    JP Morgan was one of the few large banks that didn't need TARP funds and they essentially had to take them because the GOVERNMENT didn't want to single out banks that had financial issues.

    This company had earning of 5.4 Billion in the first quarter. Is a 2 Billion dollar loss for a company of this scale something that should trigger massive government regulation? My guess is probably not but hey they lost money on risky trades so lets panic and create more reasons companies shouldn't be able to make and lose money.

    If the issue is to big to fail, break them up.

    The same Congress and two Presidents in a row have railed against to big to fail why they have have helped create the largest banks with the least competition ever. I wouldn't trust Republicans or Democrats to have a clue about to big to fail or government regulation of banks. Monopolies can be broken up under current law. If the banks are a cartel that put our financial health at risk break them up. Regulation is more likely to reduce competition and hurt consumers something that has allready occured because of the actions of 2 Presidents and a Democratic controlled Congress. Don't forget banks donate money and lobby Congress in a bi-partisan way. Any legislation is likely to make big banks more powerful not less powerful.

    Those calling for regulation should be looked at as supporters of large institutions that help protect big business at the expense of everyone else. If fill in the name of Lib had called for breaking up the banks I would be impressed. Libs calling for bank regulation right before a general election seems like a shake down of big business at the expense of consumers.
    Well said and I will add that the promise of too big to fail and government money being handed out to reward bad decisions is what fosters risk taking like this in the first place. If I were to tell you (through past actions) that no matter what you do wrong I will make sure the taxpayers will cover your mistakes what would your motivation be to manage risk?

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    Rumors floating around that this may the tip of the iceberg. Hope it's not true.


    Quote Originally Posted by Winstonbiggs View Post
    JP Morgan was one of the few large banks that didn't need TARP funds and they essentially had to take them because the GOVERNMENT didn't want to single out banks that had financial issues.

    This company had earning of 5.4 Billion in the first quarter. Is a 2 Billion dollar loss for a company of this scale something that should trigger massive government regulation? My guess is probably not but hey they lost money on risky trades so lets panic and create more reasons companies shouldn't be able to make and lose money.

    If the issue is to big to fail, break them up.

    The same Congress and two Presidents in a row have railed against to big to fail why they have have helped create the largest banks with the least competition ever. I wouldn't trust Republicans or Democrats to have a clue about to big to fail or government regulation of banks. Monopolies can be broken up under current law. If the banks are a cartel that put our financial health at risk break them up. Regulation is more likely to reduce competition and hurt consumers something that has allready occured because of the actions of 2 Presidents and a Democratic controlled Congress. Don't forget banks donate money and lobby Congress in a bi-partisan way. Any legislation is likely to make big banks more powerful not less powerful.

    Those calling for regulation should be looked at as supporters of large institutions that help protect big business at the expense of everyone else. If fill in the name of Lib had called for breaking up the banks I would be impressed. Libs calling for bank regulation right before a general election seems like a shake down of big business at the expense of consumers.

  18. #18
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    Quote Originally Posted by PlumberKhan View Post
    It has as much to do with as does an act passed in 1977 did.
    Sure, it was the repeal of Glass-Steagall instead of (D) pushing CRA to the max that led to a deluge of subprime mortgages with 100% financing to folks who should have never been loaned money for so much as the cap on the Bic to scrawl "X" on the dotted line

    NYT, 9/11/03:

    ''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.'' Representative Melvin L. Watt, Democrat of North Carolina, agreed. ''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

    keep those blatant inaccuracies and laffs coming...

  19. #19
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    Quote Originally Posted by Jungle Shift Jet View Post
    Sure, it was the repeal of Glass-Steagall instead of (D) pushing CRA to the max that led to a deluge of subprime mortgages with 100% financing to folks who should have never been loaned money for so much as the cap on the Bic to scrawl "X" on the dotted line

    NYT, 9/11/03:

    ''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.'' Representative Melvin L. Watt, Democrat of North Carolina, agreed. ''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

    keep those blatant inaccuracies and laffs coming...
    Sure but should Barney and his husband be allowed to adopt?

  20. #20
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    Quote Originally Posted by cr726 View Post
    Rumors floating around that this may the tip of the iceberg. Hope it's not true.
    And if it is true you want Chuck Shumar who did a shake down on wall street banks to get Democrats elected to the Senate and his crew to regulate these banks?

    I have no doubt these banks will kill us but the idea that Congress is going to regulate them to protect me and you is crazy talk.

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