London Whale that scuppered JP Morgan big fish Jamie Dimon's reputation
By Alex Brummer, Daily Mail |
| Scandal: Jamie Dimon was known in America as the 'King of Wall St' |
Indeed, when in 2004 the Queen’s blue-blooded City stockbroker Cazenove was seeking a respectable partner with deep pockets to take it forward into the 21st century, it naturally turned to then most illustrious descendent of the House of Morgan.
What the top-hatted and pin-striped John Pierpont would have made of the crisis that is ripping the reputation of his bank apart today does not bear thinking about.
A series of disastrous deals by a trader known as ‘Voldemort’, based at the bank’s glass and steel City compound on London Wall, have led to devastating losses for the bank of £4.4bn and rising.
It is not just the financial fall-out that has been so wounding. Authoritative inside reports about the disaster have revealed a culture of strife and squabbling at the highest level, leading to a calamitous loss of prestige for the bank.
It was, after all, John Pierpont Morgan II (son of the founder) who purposefully strode onto the floor of the New York Stock Exchange on Black Tuesday in 1929, the start of the Great Crash, and ostentatiously bought billions of dollars of shares in financial groups as a sign of his bank’s confidence in the capitalist system.
His modern successor at the bank’s helm was almost as revered. Jamie Dimon, a slick silver-haired, square-jawed financial wizard, with matinee idol looks and a personal fortune in excess of £160m, was known in America as the King of Wall Street.
Until the last few weeks, he had been regarded as the man who had steered JP Morgan to safety in the tradition of his illustrious predecessors.
In an era when financiers are held in public contempt, 55-year-old Dimon was regarded as respectable enough to personally lobby President Obama against the tide of banking regulation coming out of Congress. And the White House listened to him.
Indeed, until the events of the past fortnight, Dimon – an avowed Democrat – was hot favourite to replace Tim Geithner as the US Treasury Secretary if Obama is re-elected in November.
Now he would be lucky to be selected as the President’s valet.
Disclosure of the scandal has seen the value of the bank’s shares fall by an astonishing £19bn – a sum bigger than the value of Marks & Spencer, Burberry and J Sainsbury combined.
The irony is that the losses are entirely of its own making: it was at JP Morgan’s London base that many of the complex financial instruments that almost brought Anglo-Saxon capitalism to a shuddering halt in 2008 were first invented.
In particular, it was Morgan bankers who are credited with devising the Credit Default Swap (CDS), a sophisticated sort of insurance designed to protect (sic) players in the financial markets against potential loss on other deals.
It is this type of trading that is believed to lie behind this month’s catastrophic losses.
Why JP Morgan’s gambles in these complex financial instruments went so badly wrong has not been revealed by the bank.
It has kept its silence because of an on-going internal investigation [uh, uh] and the struggle to disentangle the dangerous positions.
In a rare dose of honesty from a leading banker, Dimon publicly admitted that the deals cast in London had been ‘sloppy’ and ‘stupid’, adding: ‘It puts egg on our face and we deserve any criticism we get.’
So far three JP Morgan Chase officials have been blamed for the imbroglio.
The most senior is the New York-based chief investment officer Ina Drew.
Formerly considered one of the most powerful women on Wall Street, the 55-year-old blonde, who earned in excess of £10m a year, had been acclaimed for her skill in circumventing the worst of the excesses seen at other banks during the 2008 financial crisis. Now, after 30 years with JP Morgan, she has left in ignominy.
Also under the spotlight is her London-based deputy, Achilles Macris, with whom she reportedly had a stormy relationship.
But it the third figure who is the most intriguing.
French-trader Bruno Iksil, also based in the Square Mile, had earned himself the nickname ‘Voldemort’ or the ‘London Whale’ because of his extraordinary trades that single handedly moved markets.
The father of four, who is in his mid-40s, has lived and worked in London for seven years.
He was reported to have received more than £60m a year in recent pay rounds.
All the time that Iksil’s trades were profitable, no one questioned them. Matters were made worse when Drew contracted Lyme Disease – a debilitating illness caught from woodland ticks.
‘When Ina was there things ran smoothly,’ a trader told the New York Times.
One former trader said that as the in-fighting continued, Iksil and Macris ‘could do what they wanted’ – and the result was a colossal black hole.
The full extent of the losses have not been quantified and traders say JP Morgan is finding it difficult to unwind some of its huge bets because of their sheer size.
Rival players, knowing of its difficulties, are taking advantage of the opportunity to drive a hard bargain.
As details of the debacle slowly leaked from the company’s towering headquarters on Park Avenue in New York, there has been an air of schadenfreude among its bitter rivals like Goldman Sachs.
Until this week, the Goldman-ites were the chief hate figures in the Great Recession – not least for the size of their bonuses at a time when ordinary families have been tightening their belts.
JP Morgan treasured its reputation for behaving more ethically than its rivals.
Yet in reality, this is not the first time that the ‘well-behaved’ bank has been embroiled in questionable activity.
Four years ago it was JP Morgan who pulled the rug from under the investment bank Lehman Brothers by withdrawing lines of credit, despite repeated requests from Lehman’s chairman Dick Fuld for more time to sort out the bank’s troubles.
Dimon refused, leading to the bank’s collapse and precipitating the biggest financial crisis since the Great Depression.
The simple truth is that despite its holier-than-thou reputation, JP Morgan has never been very different from its rivals – even down to the behaviour of its revered chief executive.
Dimon himself has been criticised in the past for allowing family members to use the corporate private jet for extravagant shopping trips to America’s most attractive destinations while ruthlessly cutting numbers of staff.
His $23m pay package has also been controversial – it was approved by shareholders, but most of the votes were cast before details of the London Whale scandal emerged.
And only this week, it emerged that JP Morgan played a key role in the botched £10bn public share offering for Facebook.
As one of the three big banks underwriting the deal, JP Morgan had allegedly been given private information that revealed Facebook’s predicted revenues were not as high as had been claimed in the published prospectus.
It is claimed that privileged big clients of the banks were briefed about this development, but many other smaller investors were left in the dark.
Now that Facebook’s share price has fallen heavily since last Friday’s launch, many feel badly betrayed by the bank’s alleged behaviour.
So has JP Morgan been truly humbled by this run of bad deals and equally toxic publicity? Not in the short term. A loss from its reckless gambles may seem immense.
But it is likely to cause little damage to a banking giant that, over the decades, has gobbled up some of the most prestigious banking names in America – including Chemical Bank, Chase Manhattan and BankOne.
Quite simply it has become a profit-making machine like no other. A loss of £4.5bn could be recovered in a three month period of profitable trading.
Far more serious is the damage to Dimon’s personal reputation. The story of Voldemort’s black hole has blown apart his attempts to lobby Washington against imposing strict new rules on so-called ‘casino trading’ practices in Wall Street.
He had claimed that the lessons of 2007-09 crisis had been learned and the days of extravagant profiteering at the banks were over.
What is clear is that while the egregious behaviour may have been temporarily interrupted, it is back with a vengeance at the loftiest bank of them all.
A century ago, John Pierpont Morgan had a lucky escape when he failed to board the Titanic, the ship his company owned. Today, the bank that bears his name may not be holed beneath the waterline, but those at the helm have been steered badly off course by the antics of the London Whale. Source