JPMorgan's Growing Loss Shakes Investor Faith

Traders who made calamitous bets on corporate debt have cost JPMorgan Chase nearly $6 billion so far. The bank announced the losses on Friday but said the firm still managed to earn $5 billion in the second quarter. But the impact of the trading loss goes far beyond the bottom line.

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MELISSA BLOCK, HOST:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block. Five billion dollars of net income in three months. Sounds like a pretty good quarter, right? Well, for almost any other company, it would be, but for JPMorgan Chase, those profitable second-quarter results have been overshadowed by news of a ballooning trading loss that shook investor confidence in the bank. As NPR's Yuki Noguchi reports, JPMorgan's CEO is trying to restore what was once a good reputation for risk management.

YUKI NOGUCHI, BYLINE: Jamie Dimon earlier this year dismissed reports of JPMorgan's risky trading strategies as a mere tempest in a teapot. That teapot runneth over. Today, the bank announced that it lost nearly $6 billion to date on those trades, and the firm also revised first-quarter profits downward by nearly half a billion dollars, citing the questionable integrity of some of the bank's accounts. All of which provided Dimon yet another opportunity to apologize.

JAMIE DIMON: We've learned a lot. I can tell you this has shaken our company to the core.

NOGUCHI: Dimon urged investors to look at what did go right. Profits in its retail banking and investment banking businesses were up. The bank is also making more loans, but Dimon is answering to more than just shareholders these days. The Securities and Exchange Commission and Justice Department are also looking into JPMorgan's big trading losses. During a two-hour business call, Dimon repeatedly referred to the bank's business and accounting practices as conservative. Here, discussing the restatement.

DIMON: We don't take it lightly. We talked to our best advisers, accounting and legal, and try to do what we thought was right and the most conservative thing to do. Hopefully, this is what the SEC chairwoman herself would have done if she'd seen all the same facts at the same time.

NOGUCHI: JPMorgan officials discussed results of their own investigations, citing greater oversight over trading practices. It also said it shut down the group that was responsible for the huge loss, and that it was clawing back compensation and benefits from many of the responsible executives and traders who had been fired. Those moves did little to silence skeptics. Mike Mayo is an analyst with Credit Agricole Securities and well-known as a gadfly critical of Wall Street. In a humorous but heated exchange with Dimon, Mayo raised concern that the trading loss and the lack of awareness at the top indicates the bank is not only too big to fail but also too big to manage.

MIKE MAYO: So I'm wondering if the firm as a whole has reached some sort of tipping point when it comes to bigness or complexity that makes it more difficult to manage than in the past.

DIMON: No.

MAYO: OK.

(LAUGHTER)

NOGUCHI: Mayo asked, but what about other possible issues, like, for example, the ongoing investigation into allegations some banks tried to manipulate LIBOR, a key interest rate?

MAYO: We saw how the sausage is made, and it just makes me wonder if I going to get food poisoning some time in the future.

(LAUGHTER)

NOGUCHI: Dimon's response:

DIMON: So you can - you all can ask me all day long. I cannot prove a negative. We believe we have very good controls and very good people in place.

NOGUCHI: Dennis Kelleher advocates for even stronger controls. He's president and CEO of Better Markets, a nonprofit group, and he says JPMorgan's loss is exhibit A for why greater trading restrictions are necessary.

DENNIS KELLEHER: If they have no idea, as they admit, what was going on, who knows what else they don't know about. And equally important, what about the other too-big-to-fail banks? Because if it can happen at JPMorgan, it can happen anywhere.

NOGUCHI: Stronger regulations, Kelleher argues, are simply a way to protect Wall Street from itself. Yuki Noguchi, NPR News.

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