Whale of a problem for JPMorgan chief Jamie Dimon
Jamie Dimon faces shareholders today after the revelation of $2.3bn trading losses
Stephen Foley is a former Associate Business Editor of The Independent, based in New York. He left in August 2012. In a decade at the paper, he covered personal finance, the UK stock market and the pharmaceuticals industry, and had also been the Business section's share tipster. Between arriving with three suitcases in Manhattan in January 2006 and his departure, he witnessed and reported on a great economic boom turning spectacularly to bust. In March 2009, he was named Business and Finance Journalist of the Year at the British Press Awards.
Tuesday 15 May 2012
This wasn't the annual shareholder meeting that Jamie Dimon was expecting to have. Instead of a bullish gathering this morning, where the self-designated spokesman for Wall Street assailed regulation of the industry and boasted about his bank's fortress balance sheet, the JPMorgan Chase chief executive will instead be on the back foot, facing questions about his personal conduct and his future.
Rebel shareholders are demanding that Mr Dimon be stripped of his dual role as chairman of the bank, and although their proposal had been expected to be easily crushed, organisers are now braced for a contentious debate among the shareholders gathering for the meeting in Tampa, Florida.
The change? JPMorgan revealed last week that it had lost $2.3bn on a vast and intricate derivatives trade at its so-called "central investment office", which has morphed in recent years from a conservative office designed to mitigate business risks into a much bigger operation making bets on the financial markets and the economy.
The bank is now struggling to contain further losses that could top $1bn more, as it unwinds large wagers on the credit markets made by a trader nicknamed "the London Whale", and the cost of the bet appears to be rising daily, by at least $150m just on Friday. Yesterday, the company said that Ina Drew, the head of the CIO and one of the most powerful women on Wall Street, would leave the company, and more executives and traders – including the London Whale, Bruno Iksil – are expected to follow.
"Ina Drew has been a great partner over her many years with our firm," Mr Dimon said. "Despite our recent losses in the CIO, Ina's vast contributions to our company should not be overshadowed by these events."
Mr Dimon has been waging a personal public relations battle to stem the fallout, while proponents of tougher regulation have seized on the disaster to push their case. The chief executive has said the trading strategy "was badly vetted, it was badly monitored, it should never have happened" – but there are questions now about how much he personally knew about the trades.
A former executive from the CIO claimed in an interview that Mr Dimon had personally pushed for the division to take more aggressive positions and to turn big profits for the bank. David Olson, who used to be head of credit trading at the CIO, told Bloomberg News that the division's trading strategies had blown up before, notably when it invested in the debt of mortgage finance giants Fannie Mae and Freddie Mac, shortly before they had to be nationalised by the US. The only reason I wasn't fired then, Mr Olson claimed, was because Mr Dimon was "intimately familiar with those positions".
Mr Dimon's reputation as a flawless risk manager has now been blown apart by the revelations of the past few days, which continue to hurt JPMorgan shares. The stock fell 9.3 per cent on Friday and was off another 2.1 per cent by lunchtime yesterday, taking cumulative losses in the company's value since the confession to more than $16bn.
Analysts who have been bullish on JPMorgan shares have typically referenced Mr Dimon's personal reputation, burnished over the course of the credit crisis, in which the bank missed out on most of the losses on subprime mortgages and in fact snapped up weaker banks, including Bear Stearns and Washington Mutual.
CtW Investments, which co-ordinates union pension funds holding 10 million JPMorgan shares, is expected to demand a shake-up of the way the company manages risks, including the resignation of Ellen Futter, the independent director who chairs the board's risk committee. Ms Futter is a former corporate lawyer whose day job is president of the American Museum of Natural History.
But it is the debate on the future role of Mr Dimon which is likely to be most contentious. The Association of Federal, State and City Municipal Employees (AFSCME) has presented a proposal to instal an independent chairman, saying that Mr Dimon needs a boss so that the company does not become "a sandbox for the chief executive". The AFSCME has been pressing its case since the revelation of the trading losses, saying: "The stakes are too high to leave Jamie Dimon unsupervised. Dimon denied that 'the London Whale' was making risky bets and now that this has turned out to be a fish story, shareholders need to step in."
Most of the shareholder votes on the resolution, which the board opposes, were cast by proxy before the revelations of the trading losses, though they could still be changed by institutions that turn up in person to the meeting on JPMorgan's Highland Oaks campus in Tampa this morning.
Last year, several hundred shareholders attended the annual meeting in Columbus, Ohio, where hundreds of protesters, including some dressed as Robin Hood, attempted to storm the event to protest at Wall Street greed.
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