JPMorgan losses reignite clash between Wall Street and Washington

Surprise trading losses at the nation’s largest and most respected bank reignited a long-simmering clash between Washington and Wall Street on Friday, as lawmakers blasted banks’ efforts to fight regulations passed into law after the financial crisis.

Senior lawmakers seized on the news that JPMorgan Chase had lost $2 billion on risky bets — blamed by bank chief Jamie Dimon on “sloppiness and bad judgment” — as evidence that big, interconnected banks cannot be trusted to stop gambling in ways that put the financial system at risk.

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Gordon Kerr, founder of Cobden Partners, discusses JPMorgan Chase & Co.’s $2 billion trading loss and the impact on banking regulation. He speaks with Mark Barton and Linzie Janis on Bloomberg Television’s ”Countdown.” (Source: Bloomberg)

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JPMorgan trading loss one of the biggest in recent history: On May 10, JPMorgan Chase announced that it had suffered $2 billion in trading losses, becoming the latest financial firm to have a major trading disaster. Our friends over at Bloomberg have put together a list of the biggest trading mistakes over the years. We take a look at the five most recent blunders.

That the losses would only dent the quarterly profits at one of the world’s largest banks, and that they were revealed by the bank’s own management, did not diminish the chorus on Capitol Hill for tighter controls. The charismatic and often outspoken Dimon, who has argued rigorously against strict financial regulations, fielded calls Friday from several lawmakers and regulators at the bank’s Midtown Manhattan headquarters.

The biggest blow-up between Wall Street and Washington since 2010, when Congress passed the Dodd-Frank Act to tighten oversight of the financial industry, comes just as regulators are drafting new rules governing banks. A signature feature of the law is the Volcker Rule, a prohibition on banks engaging in speculative bets. The authors of the act say the measure might have prevented JPMorgan’s bad trades had it been in effect.

“The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today,” Rep. Barney Frank (D-Mass.) said.

The $2 billion loss — made by a Britain-based trader known as the “London Whale” because of the size of the bets he placed – was unlikely to make a major difference to the finances of JPMorgan, which earned $19 billion last year.

JPMorgan’s shares lost more than 9 percent of their value Friday.

Lawmakers suggested that Dimon was facing a type of poetic justice after he used the credibility he established before and during the credit crisis — when he avoided excessive risks and scooped up dying firms — to lead the fight against strict financial regulation.

Just last week, Dimon captained a group of top bankers in slamming Dodd-Frank provisions in a private meeting with top Federal Reserve officials in New York.

“We’ve got a situation where he has favored the repeal of Dodd-Frank,” said Sen. Carl Levin (D-Mich.). Dimon’s positions “have been dramatically proven to be wrong in this recent $2 billion loss.”

Republicans also weighed in Friday, with Sen. Bob Corker of Tennessee calling for a congressional hearing into the JPMorgan losses to question whether “taxpayers are fully protected from losses at major financial institutions.”

Dimon made no public comments Friday, spending much of his time, along with other senior executives, talking to officials in Washington about the trades. But in disclosing the losses Thursday evening, the bank chief insisted that the bank caught the mistakes that led to the losses and took action to fix the problem.