Thursday, June 14, 2012

Jamie Dimon, Rock Star

'Cause we all just wanna be big rockstars
Livin' in hilltop houses driving fifteen cars
Rockstar by Nickelback

   On the front page of the New York Times today (June 14) is a photograph of Jamie Dimon looking every bit the rock star on his way into the Congressional hearing about JPMorgan's $2bn (plus) credit derivatives losses in the UK. His testimony was described in awed superlatives by TV presenters.  One wag even said that, in PR terms, Dimon's behavior and delivery would become the template for others who find themselves in his shoes going forward.
   Jamie Dimon is not a rock star. He is the CEO of a very large financial institution which proved that regulation is not only necessary but essential.  What Dimon said in so many words was that his team did not understand the risk involved in the positions they were taking. The chief investment office did not understand the risk? That is tantamount to saying no one in the firm understands risk. One horrified trader told me: "Trading is all about a little bit of analysis, a little luck and a complete understanding of the risk you are taking and its possible repercussions."
   Call it hedging or proprietary trading, the bottom line is that JPMorgan's CIO traders did not understand the complex suite of synthetic derivatives they were playing with. They changed their value at risk (VaR) models in the meantime, inexplicably screwing themselves up further, and then changed them back again revealing the losses.
   If the CIO at JPMorgan did not understand the risk involved in its derivatives positions, can investors and regulators really believe that trading departments and CIO's at other banks understand it? I think not. The Bank of England was so shaken up that Andrew Haldane, executive director for financial stability, hinted strongly that large banks should be monitored for risk, according to Reuters.
   Dimon may look the part of a rock star, but he may have allowed his band to party too long while he was out lobbying against regulation. To paraphrase Nickelback, life hasn't turned out quite the way Dimon wanted it to be.

Friday, June 8, 2012

Jon Corzine, Chocolate and Football

   Once upon a time, MF Global's CEO Jon Corzine wanted to turn a reasonably profitable, medium-sized brokerage into a global investment bank.It didn't have a happy ending.
   Jon Corzine believed that, because he had been a trader and CEO at Goldman Sachs and the Governor of New Jersey, he was invincible. In short, he believed his own PR. My husband is fond of an expression that sums it up really well: "If he were made of chocolate he would eat himself."
   I Googled the expression and it seems to have been born in the UK with its roots in football. Now I am not a particular fan of football (English, that is. American football I loathe with a gut-twisting passion; ten seconds of incomprehensible activity and then hours of faffing about and adverts), but having spent 20 years in London knowledge of the sport has seeped into my brain surreptitiously. When you are surrounded by a primordial soup of traders and brokers and bankers who adore the sport, there is a kind of sports-osmosis that takes place.
   The first quote I found regarding eating oneself came from Scottish footballer Archie Gemmill: "If Graeme Souness was a chocolate drop, he'd eat himself."  I actually knew that Graeme Souness had played for the Glasgow Rangers and that he loved seeing himself on TV, so that made sense.
   The second quote came from Scottish football manager Tommy Docherty: "If Jose Mourinho was made of chocolate he would lick himself." When coach Mourinho joined Chelsea he said in a press conference: "Please don't call me arrogant, but I'm European champion and I think I'm a special one," which resulted in the media dubbing him "The Special One." Brilliant. 
  I digress into football to make a point. If a person takes him or herself too seriously and believes his or her own PR, that person is like a lightning bolt for criticism. Especially if he loses $1.6bn of his customers' money. MF Global trustees seem to think Mr. Corzine should have relied less on his own PR and more on common sense and accountability.