Banks stocks took an incredible hit Friday after JP Morgan Chase and corporate reported a $2-billion loss on a fancy trading strategy that went bad. The bank's disclosure is renewing debate over the necessity for tougher financial regulations.
It's one of many world's biggest investment banks, and its CEO is likely one of the harshest critics of presidency efforts to rein in risky financial bets. But in a late night conference call to shareholders, JP Morgan CEO Jamie Dimon told investors the bank could have taken too big a risk.
“We are reducing that hedge, but in hindsight, the brand new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored," said Dimon.
Dimon blamed the $2-billion loss on a posh trading scheme that was designed, ironically, to assist manage the bank's credit risks. Instead, the trading blunder bolstered the argument that gigantic banks can not be trusted to address risks on their lonesome.
"Well, as he [Dimon] said himself, there's egg on his face [he's embarrassed] and it does play okay, as he says, into the pundits who've been advocating the Volcker rule and likewise the scenario of being too big to fail," said CMC Markets analyst Brenda Kelly.
The Volcker rule is called after former Federal Reserve Chairman Paul Volcker. It'd restrict the largest U.S. banks from making risky investments that don't benefit bank customers. Volcker said such trades involving credit default swaps and other derivatives played a key role within the financial crisis of 2008.
"It was elements of a casino, a extremely complex casino with all types of inter-dependencies. And when it came stressed, not only from credit default swaps but otherwise, when the system came stressed - it collapsed," said Volcker.
JP Morgan has warned investors to expect additional losses - sending a shiver through Wall Street. JP Morgan stock lost greater than 8 per cent of its value. Other financial stocks also suffered big declines.
Analysts fear the scandal will impact regulations not only within the U.S., but everywhere.
"Just because it will within the U.S. and inside the eurozone, Asia is simply not spared this push down the trail of greater, tighter regulations," said Tim Condon, who's head of Asia research at ING Financial Markets.
In a press release Friday, U.S. Senator Carl Levin of Michigan, who have been pushing for brand spanking new banking rules, said the bank's losses were "a stark reminder of the necessity for regulators to determine tough, effective standards."
From WhatNewsToday.net
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