Resignations Begin At JPMorgan After $2 Billion Loss
ROBERT SIEGEL, HOST:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
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And I'm Melissa Block.
JPMorgan Chase's chief investment officer is stepping down. Her name is Ina Drew. She's one of Wall Street's highest- ranking women, and she is the first to go after last week's surprise announcement that the bank lost at least $2 billion.
SIEGEL: Drew is retiring, and more departures are expected as the bank tries to address criticism from its investors. Meanwhile, as NPR's Yuki Noguchi reports, JPMorgan's costly mistake has revived calls to strengthen regulations that the bank opposes.
YUKI NOGUCHI, BYLINE: Federal regulators are looking into whether the trades that JPMorgan lost money on violated any securities or accounting laws. But the bank's revelations also come at the exact, same time regulators are trying to hone the specifics of financial regulations set to take effect in July. So the big question now is whether the law should include language to bar JPMorgan's recent trades, and that debate boils down to some very subtle definitions. Here is JPMorgan CEO Jamie Dimon, on NBC's "Meet the Press."
(SOUNDBITE OF TV SHOW, "MEET THE PRESS")
JAMIE DIMON: Specifically, hedging should make your bank less risky. In this particular case, we made a terrible mistake.
NOGUCHI: The key term there is hedging. Dimon called the bank's ill-fated trades a hedge against other bets. This matters because what qualifies as a hedge goes to the heart of financial reform. Traditionally, a hedge is like car insurance. It offsets a risk limiting a potential downside. And in fact, Michigan Sen. Carl Levin, who helped write the new law, says that's exactly what he intended.
SEN. CARL LEVIN: Her language only allows hedges which reduce specific risks.
NOGUCHI: The specific issue is a provision of the law often called the Volcker Rule, after Paul Volcker, the former Federal Reserve chair and ex-adviser to President Obama. Volcker sought strong restrictions limiting Wall Street's ability to take excessive risk with their trading. Such unregulated trades, the argument goes, put too many bank assets at risk; which, in turn, put taxpayers on the hook when banks start to fail.
Levin admits the agencies charged with implementing those rules aren't of one mind about what, exactly, hedging means.
LEVIN: Some of the regulators agree with us. Some don't, apparently.
NOGUCHI: Levin says the Fed's draft - set to go into effect July 21st - redefines hedging in a way that essentially, guts the spirit of the law. It creates exceptions for what the Fed calls portfolio hedging, which could include complex derivative trades.
William Black is a former banking regulator, and now professor at the University of Missouri, Kansas City. And he says that broader definition of hedge is the one that Dimon - and other executives on Wall Street - would prefer to use.
WILLIAM BLACK: Now, what that means is, they're really taking speculative positions and calling them a hedge. And the reason they're calling them a hedge is if they're a hedge, then they'd be permissible under the Volcker Rule.
NOGUCHI: Black says he hopes JPMorgan's trades will highlight the risks of the broader definition of hedge, to regulators and to the public.
BLACK: Jamie Dimon's great fear is that he's given the ammunition to the public, to win this battle.
NOGUCHI: In fact, when Dimon was asked that very question on "Meet the Press," he agreed that's what's happened. Absolutely, he said, this is an unfortunate and inopportune time to make a mistake like this one. JPMorgan's shares are down more than 12 percent since the news of the losses broke last week.
Yuki Noguchi, NPR News, Washington.
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