Friday, May 11, 2012
JPM: Crows' Nests and Glass Houses
When JP Morgan Chase was on top of the world, having (more or less) successfully fought off the dragons of the credit crisis and financial markets meltdown, Dimon went on a rampage to discourage any sniff of regulatory action. He sent lobbyists by the dozens to Washington, DC (all the banks did) and spoke at any and all conferences or to journalists who wanted a "balanced" opinion on regulation. He was particularly smug when savaging the Volcker Rule. His message: We don't need it. As the British woman on CNBC said, it is a good idea not to crow when you are on top.
Today JPM sits with a $2bn loss on derivatives, which he admits they lost control of. Lost control? Losing $2bn in one month? If the market was aware that JPM had built up an untenable-looking "whale" of a position in credit default swaps over a month ago, then surely JPM's risk team must have noticed? According to the FT, the bank had implemented some new risk modelling tools in Q1, which it has now shelved. Have they not heard of testing new applications before they go into a live environment? And where did JPM, or any other bank for that matter, get the idea that using VaR was a good idea? It was obvious after the credit crisis that over-reliance on VaR was one of the problems. (I wrote about it in Financial News in December 2008.)
Note to Dimon: Don't go out throwing stones at regulators when you live in a glass bank.