JPMorgan hedges were really prop trades: Meredith Whitney

$2B trading loss stemmed from profit-seeking bets, not hedges to mitigate losses

Jun 19, 2012 @ 2:53 pm

JPMorgan Chase & Co.'s $2 billion trading loss stemmed from profit-seeking bets rather than hedges meant to mitigate loan losses, as Chief Executive Officer Jamie Dimon has described them, banking analyst Meredith Whitney said.

“It's very hard to argue that what Jamie Dimon is now on the Hill for is a hedge,” Whitney said today in a radio interview with Bloomberg as the bank chief testified at a hearing of the House Financial Services Committee in Washington. “A credit hedge in banking should be a loan-loss provision, plain and simple. Anything else is a proprietary bet.”

Dimon has described the loss as stemming from a hedge that “morphed into something I can't justify.” He has publicly opposed the so-called Volcker rule, a Dodd-Frank Act provision meant to limit deposit-taking lenders from making proprietary trades, or bets with their own money.

“Of the large banks, JPMorgan has the lowest loan-to-deposit ratio,” said Whitney, CEO of Meredith Whitney Advisory Group LLC. “It didn't frankly seem to bother anyone there because they clearly were making money in this trading book.”

Whitney, 42, also disputed Dimon's claim that bank regulation may curb lending. Dimon, 56, confronted Federal Reserve Chairman Ben S. Bernanke at a public forum last year, blaming excessive regulation for slowing the U.S. economic recovery.

“It stymies the velocity of money in the system, you have to hold more capital,” Whitney said. “But in terms of lending, absolutely not.”

Dimon's performance at a Senate hearing last week went more smoothly than Whitney expected, she said.

“I was very surprised because it's a very difficult trade to explain,” she said. “He charms, he's incredible. He gave the senators a massage, they gave him a massage back.”

--Bloomberg News--

0
Comments

What do you think?

View comments

Most watched

Events

Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.

Events

Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.

Latest news & opinion

The growth of factor-based investing

Advisers are making decisions about clients' portfolios by using the same characteristics that govern factor-based ETFs.

Finra makes its list to target hundreds of rogue individuals

The regulator sees patterns in the behavior and disclosures of high-risk brokers.

LTC insurer offering co-pays to blunt soaring premium increases

John Hancock policyholders would get a discount on their premium in return for agreeing to pay a bigger portion of their claims in the future.

Goldman Sachs acquires United Capital

After a payday of $75 million or more, CEO Joe Duran plans to join Goldman in a senior position.

Private equity loves IBDs, but will that last?

Three big acquisitions in less than a year signals renewed life in the formerly beleaguered industry.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print