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Fri May 18, 2012
What Happened When JPMorgan Realized Huge Loss?
Originally published on Fri May 18, 2012 4:34 pm
ROBERT SIEGEL, HOST:
When the chief investment office of JPMorgan Chase was making big profits for the bank with what amounted to big bets, the bank's chairman and CEO, Jamie Dimon, stopped paying close attention to its operations. When he realized it was making big losses and saw the numbers, he couldn't breathe. That's according to Monica Langley's piece in today's Wall Street Journal, "Inside J.P. Morgan's Blunder."
Langley interviewed numerous JPMorgan executives, including Jamie Dimon, and she joins us now. Welcome to the program.
MONICA LANGLEY: Thank you, Robert. Good to be here.
SIEGEL: Let's start with the chief investment office. I want you to tell us first how it evolved - how it had evolved under Jamie Dimon's leadership.
LANGLEY: The chief investment office is to hedge against potential lawsuits for the bank, so the main purpose of an institution is to make loans and serve customers and this is to make bets on the economy one way or another in case the loans go bad.
What happened over time, Robert, is that they were able to do trades that made money. And so, Jamie Dimon, the CEO who is known for his risk management and his attention to detail, kind of took his eye off the ball on this one.
SIEGEL: You write that, last year, Achilles Macris, who oversaw trading in London, dropped the risk control caps that had been in effect. The traders had been required to exit positions when losses exceeded $20 million and you write Jamie Dimon was unaware of that. That sounds very atypical of his management style.
LANGLEY: It is, but remember, this was very low down in the operation. I mean, this is a massive enterprise. It made $19 billion in net income last year, but the people under him who were heading that unit should have been more aware.
But, nevertheless, as Jamie Dimon himself says, he's ultimately in charge of this bank and the risk, so he believes that he failed in this instance.
SIEGEL: I want you to describe how Dimon came to grips with the facts of what were happening in London. At first, back in April, when he spoke of these losses, he referred to them as a tempest in a teapot. Why was he so dismissive?
LANGLEY: Because he had grown - using his words - complacent with the performance of this unit. They were always making profits. They could count on it. I mean, you know the financial environment and the economic environment have been so tough in recent years that he was keeping his eye on those units. And then this happened that there were weird trades coming in and weird losses and Jamie went to the head of the CIO and said, what is this? And this person, Ina Drew, told him, we can handle it. The hedge funds are eating us up, but we can weather through it. So Jamie Dimon called it a tempest in a teapot.
Well, shortly after that, he started watching the losses more carefully, Robert, and indeed, every day, they were losing 100 to $150 million.
SIEGEL: When he finally sees the numbers, people around him describe him to you. He was breathless, you say.
LANGLEY: Correct. He kept asking for information and the unit kept giving him summaries of their positions and analysis. Finally, he had had enough. He threw the papers down on his conference room table and said, I want to see the positions now. I want everything. Then, when he got the positions, he could not believe what he saw because he knew they were really messed up with this trade.
SIEGEL: You do report that the losses here could total $5 billion. It's already, I gather, up the $3 billion. Even so, is it your sense from what you heard around JPMorgan that Jamie Dimon is completely out of the woods here?
LANGLEY: Completely out of the woods in that he will remain the chief executive unless some more detail that I'm unaware of comes out. I think that his board, in fact, has told him, we need you more than ever to get through this. I mean, he is considered a savvy and brilliant financial CEO.
On the other hand, he's already been asked to come speak before the Senate Banking Committee. As he told his senior team one night as they were drinking vodka in his office, put on your JPM jerseys and get ready. We are going to take a lot of hits.
SIEGEL: Well, Monica Langley, thank you very much for talking with us.
LANGLEY: My pleasure.
SIEGEL: That's reporter Monica Langley of the Wall Street Journal. Her story today is headlined, "Inside J.P. Morgan's Blunder." Transcript provided by NPR, Copyright National Public Radio.