It would seem that JPMorgan Chase & Co. (NYSE:JPM)’s CEO, and Chairman Jamie Dimon will still continue being haunted by the gamble- a complex derivatives portfolio -which the largest bank in the US took that, got a life of its own and led to the bank making a $2 billion trading loss.
It has just been reported that the U.S. Department of Justice will be opening an inquiry in to the $2 billion trade loss that JPMorgan recently incurred in a miscalculated gamble. The loss that led to the loss of more than $20 billion in shareholder equity has renewed calls that banks need to be regulated further. This is because investors and the general public are still aware of the recent credit crisis that rocked the nation not too long ago.
In fact, it would seem that CEO Jamie Dimon is on unfamiliar territory because during the last major credit crisis, he was one of the least affected major banks CEOs. Therefore, the recent loss that was gotten in a failed trade gamble would seem like a trifle to the powerful Wall Street CEO.
The probe that is being undertaken by the Justice Department is still in its current stages, and it is not really clear what laws may have been broken by JPMorgan Chase & Co. (NYSE:JPM). However, it would seem that the gamble that was made out of huge derivates which got a life of their own, has not only caught the attention of the feds, since the Securities and Exchange Commission has also taken notice and will be carrying out an investigation of their own.
In the press conference where Dimon announced the loss of more than $2 billion in a hedge that the firm had undertaken, the CEO said that they would also face another $1 billion in losses, and is this was the case; then it would form one of the top ten trading losses of all time.
It has also been ascertained that the details of the transaction could be traced back to a famed London-based JPMorgan trader, named Bruno Iksil. The trader had built a number of derivative positions that amounted to more $100 billion, and that a number of Hedge funds had taken positions against the trader who is also known as Voldemort, or the London Whale.
However, speculations that the fed investigations were politically based are unfounded since the same thing happened when financial institutions and banks started going down, in the credit crash of 2008. At the time, the FBI scrutinized emails and documents that were related to the collapse of American International Group, Inc. (NYSE:AIG), and Lehman Brothers Holdings Inc. (PINK:LEHMQ). The main scope of the investigation then was to determine if there was any wrong doing that led to the credit crisis and the nationalization of Freddie Mac, and Fannie Mae.
However, it cannot be wholly said that there is no pressure from the political community because after the credit crisis fiasco, there have been calls for stronger regulations on the banking community so that a similar scenario- collapse of multiple banks- is not repeated.