Words with bankers
JPMorgan boss Jamie Dimon should have a pretty good handle on the London Whale’s losses by now. So investors can be forgiven for lopping as much as 5 percent off the bank’s market value – it later recovered somewhat – after the New York Times reported the hit could reach $9 billion. That would contradict Dimon’s claims in May that he wouldn’t unwind the trades in a panic – and that what was at the time a $2 billion loss could eventually double.
Such a large pool of red ink is probably only a worst-case scenario, one spat out by JPMorgan’s models in April, according to the New York Times. But it’s not hard to imagine rival traders pouncing on JPMorgan’s woes and pushing the losses above the chief executive’s own estimates.
Dimon nevertheless seemed pretty adamant last month that the bank would “maximize economic value” when disposing of the dunderheaded positions. In other words, it would not take unnecessary losses just to get the trades off its books quickly and could hold on to some of them until the end of the year, or longer. But it now appears that JPMorgan has offloaded as much as 70 percent of the bet already. Coupled with rising loss estimates from analysts, it’s no surprise shareholders are getting jittery.
It’s worth considering Dimon’s position, too. He has already been caught out downplaying the problem on the bank’s first-quarter earnings call, when he referred to it as a micro-storm suitable for a hot-beverage-brewing apparatus. The comment severely dented Dimon’s reputation for risk management and led to a series of public apologies and self-criticism. He was pilloried in the press and hauled up to Capitol Hill.
Dimon is also on record saying the bank remains solidly profitable in the second quarter, albeit with the help of some gains from selling securities to offset some of the trading pain. Anything undermining that expectation would whack him again and could even require another public update on the bank’s earnings before official results on July 13.
Some wiggle room on the eventual size of the damage may be appropriate. But Dimon should be judged on his words, and even $6 billion would look bad. At this stage, he may not have that kind of credibility damage to spare.