Banking Woes

Talk about bad timing.

JP Morgan, the bank that can do no wrong, has announced a major loss. $2 billion to be precise. Or rather that’s the bit of the loss they know about so far. Banking is just so damn complicated sometimes. It takes a while to figure out how much capital has flown out the window.

Jamie Dimon, the banker who can do no wrong, now has a very substantial black mark against his name. In fact he’s speeding up the stupid banker charts as we speak. His damnation of the problems leading to the loss are choice words:

‰ÛÏWe‰Ûªre reducing that hedge,‰Û? Chief Executive Jamie Dimon said on a conference call late Thursday. ‰ÛÏBut in hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed, and poorly monitored. The portfolio has proven to be riskier, more volatile, and less effective as an economic hedge than we thought.‰Û?

Let me get this straight.

The strategy was flawed. But JP Morgan’s executive team signed off on it anyway.

It was complex. Oh. You mean like all those rotten deals that blew up the banks a couple of years ago. I realize that in the go-go zip zip world of Wall Street that a few minutes equates to eons in human time, but really is it so easy to forget the results of overly complex trading?

It was poorly reviewed. Huh? What JP Morgan lacks sound governance? Its risk management has fallen into disrepair? It stinks? Somebody signed off on this. What kind of bonus will they get? Will they keep their job?

Worse: it was poorly executed. Whoops. So not only is JP Morgan’s governance structure full of holes, but it oversees a bunch of incompetent ninnies to boot. The blind are overseeing the dimwits on Jamie’s watch.

Even worse: it was poorly monitored. Really? In banking? Rotten oversight, stupid employees, and now this! No control either. The great ship that is JP Morgan, the bank that can do no wrong, turns out to be a dull witted rogue elephant drunkenly lumbering out into the swamps of synthetic derivatives trading all by its lonesome. We need to find some grown-ups to help it back to safety.

And now, roll the drums, the clincher. It all turned pout to be a tad more of a risk – to the tune so far of a $2 billion loss no less – a tad more volatile, and not really a very good hedge. No kidding? Only in the absurd world of modern banking can a portfolio that generates a $2 billion loss, and counting, be referred to as a little more volatile. How about a great big huge whopping more volatile.

While Dimon wipes the egg off his face he will surely rue that his bank, the bank that can do no wrong, just gave a gift to legislators who are currently wrapping up their development of the details of the Dood-Frank bank reform. The JP Morgan loss came in exactly the portfolio the Volcker rule takes aim at. Dimon has been at the forefront of the industry’s push back against the Volcker rule, so his embarrassment is doubly harmful. Not only is his personal reputation blotted, but so is the industry’s.

Bad timing indeed.