Can Jamie Dimon get his mojo back?
The chief executive of JPMorgan Chase & Co., once considered the industry's savviest banker, is set to answer for an embarrassing trading debacle that cost the bank billions, torpedoed its stock, and dented his own reputation for controlling risk.
On Friday morning, JPMorgan is reporting its earnings for the second quarter. All eyes will be on Mr. Dimon, who is set to reveal the extent of the losses the bank suffered thanks to the activities of a trader popularly known as the "London Whale."
In May, the bank said the trader's massive wrong-way bets had cost it $2-billion (U.S.) and counting. The total losses could be as high as $9-billion, or more in the range of $5-billion, according to recent press reports. The bank is still expected to turn a profit of 76 cents a share for the quarter, according to analysts surveyed by Bloomberg LP.
Friday's earnings presentation is Wall Street's version of "must-see TV." Investors want to know just how big the trading losses were and how the bank allowed them to happen. They'll also grill Mr. Dimon about the activities of the little-known unit where the trading occurred, since its chief reported directly to him.
The mess is a rare misstep for Mr. Dimon. Smart, tough and detail-oriented, he piloted JPMorgan through the worst financial crisis since the Depression. As bank after bank failed, sought a bailout, or got tarred as a "vampire squid," JPMorgan emerged bigger and, arguably, stronger.
Earlier this spring, when analysts first questioned Mr. Dimon about the trading losses in London, he memorably dismissed them as a "tempest in a teapot," a description that would come back to haunt him.
Mr. Dimon should have "shut his mouth," said Christopher Whalen of Tangent Capital Partners LLC, one of the analysts who is attending the earnings presentation. "They'll have a leash and a collar on him [on Friday]. A lawyer will be following him around."
It's not just Mr. Dimon's reputation that has taken a hit. Since JPMorgan announced in May that the trading losses would be more than $2-billion, investors have punished its stock, sending it down 15 per cent.
Some experts say that reaction is overkill. "The company still has plenty of capital and, we believe, generates enough income in its other business lines to manage this loss," wrote analysts at RBC Capital Markets in a note to clients. "We do not believe trading losses will reach the level necessary to justify such a decline."
According to a report this week in The Wall Street Journal, JPMorgan plans to "claw back" millions of dollars in stock-based compensation from the employees responsible for the debacle, including Ina Drew, the senior executive who oversaw the Chief Investment Office, the unit where the trading occurred. Such moves to reclaim compensation are rare on Wall Street.
One of the most prominent bankers in the world, Mr. Dimon, 56, has been outspoken about what he considers unfair attacks on the industry and ill-advised attempts to regulate it. Among those he has tangled with is Bank of Canada governor Mark Carney. The two reportedly had an angry exchange last fall over efforts to increase capital cushions for the world's biggest banks.
The trading losses generated by Bruno Iksil – the so-called London Whale – through an enormous bet in an obscure corner of the credit markets have thrown Mr. Dimon's criticism of regulation into sharp relief. JPMorgan took on such risky bets even as Mr. Dimon railed against what is known as the Volcker rule, which aims to bar banks from exactly this kind of trading.
The episode led U.S. President Barack Obama to single out Mr. Dimon on network television. Speaking on the talk show The View, Mr. Obama said that Mr. Dimon "is one of the smartest bankers we got, and they still lost $2-billion and counting." This is why Wall Street reform is so critical, Mr. Obama said. "Even if you're smart, you can make mistakes … [and] we don't want you taking risks where eventually we might end up having to bail you out again."