In the past, when Jamie Dimon came to Washington it was to chastise lawmakers for their heavy hand in regulation.
This week the JPMorgan chief — the heretofore Emperor of Wall Street — is being called in front of the Senate Banking Committee, crown in hand and pride in tow.
He will be there to answer questions about a $4 billion (and growing) derivatives-trading calamity that happened during one of his “hedging” operations.
Now for sure Washington’s politicos are champing at the bit. Many in DC have had to listen to and be spoken down to by Lord Dimon about pretty much everything financial, so he will undoubtedly have to answer some pretty tough questions rather well in order to leave the hearing not looking like the court’s jester.
To be crystal-clear, the key here is to determine if JPMorgan ever exposed customer funds to risk and whether the bank was transparent or opaque about it. What they do with their house money is ultimately — and really should be — their own business.
For openers, the senators should ask Dimon when was the last time he visited and spoke to Bruno Iksil, the “London Whale,” before his trades hit the fan. This will be important to help determine, in a general sense, Dimon’s actual management style and his situational knowledge or lack thereof of Iksil’s positions.
Next, was Iksil’s pool of hundreds of billions of dollars a bank profit center or a pure hedging operation?
Hedging operations are typically not profitable operations — in fact, in many years corporate headquarters don’t mind a bit if the operations are losers, as that would mean that the underlying loans and positions are doing rather well.
In any event, with trading revenues larger than those of Goldman Sachs last year and an enormous balance sheet, wouldn’t JPMorgan — and the US economy — be better off split in two?
One part would be a traditional bank with FDIC insurance, and one a true investment bank without a banking license and free to take calculated risks with its capital without the regulatory onus or taxpayer backstop.
One thing is sure: When the circus starts this week, the showmanship will be grand and pompous, and Dimon will emerge as Emperor or jester.