Tag Archives: JP Morgan

Did Jamie Dimon blow it?

Did Jamie Dimon, the much vaunted and now disgraced CEO of JP Morgan Chase blow it in managing the $2bn trading bungle? Or, is this another situation of damned if you do, damned if you don’t? I’ve been fascinated to see the different takes on this crisis and varying analysis of Dimon’s performance.

This article in Fortune makes it clear that Dimon is another in a long line, of stupid, inept bungling CEOs that smart journalists like this one for Fortune can’t figure out how they could rise to such high pedestals.

On the other side is this analysis by crisis communication expert Bill Salvin that says while mistakes may have been made, Dimon’s performance is pretty much on target. He provides a good list of the things that Dimon did right.

Personally, I lean more toward Salvin’s view than Ehrenberg’s. Certainly, there is some 20/20 hindsight going on and like most of the rest of the world, I wasn’t paying any attention when Dimon was supposedly vigorously downplaying the trading problem. But what Ehrenberg misunderstands is that the “web afire” does not necessarily mean that Dimon created it, caused it or could have effectively prevented it. Like my previous post on this about the LA Times blog on it, there are a great many Wall Street haters out there (unfortunately for some very good reasons) who love to see the mighty fall and love to see more government regulations. A lot of these would love to see every Wall Street banker, and probably every banker for that matter, in striped suits, and I don’t mean pin stripes.

That’s the nature of our world, and it doesn’t have much of anything to do with Dimon’s performance. So it is misleading to look at situations like this and conclude that the CEO is a dummy and that all this could have been prevented by having a smart CEO. I’d like to think of this as the “Hayward” problem, as in Tony.

The truth is in our world there are some massive shifts in cultural values going on. Big, for a great many younger people particularly, is bad, small is good. Global is bad, local is good. Powerful is bad, me is good. Bankers are bad, Wall Street is hell bound. You get the picture. The media reflect and amplify these values to a considerable degree and they live in their full glory (or ugliness) in the Internet particularly on sites like Reddit. The media see these values at work and the digital lynchmobs forming and decide that this is a really big crisis and that therefore the spokesperson or CEO or whoever is visible is to blame and that the cause of it is their screwup. The logic is faulty.

The big lesson for crisis communicators and the CEO’s they work for is to understand the soup you are in. What is your environment like? How many enemies do you (your industry, your business type) have that are just waiting for an opportunity to say: See, this is why I hate these guys, this is why they should all go to jail or to hell. The challenge is, you don’t control the soup. But how you operate when things go badly will make a difference when you understand that environment. But just because the crowd jumps up and attacks does not mean the CEO is an idiot, despite what Fortune, LA Times and most other journalists and editors might think.

 

JP Morgan makes bloody big trading error, and the media sharks attack

The folks at Goldman Sachs are breathing just a little easier today. The media sharks have found another sad victim: JP Morgan.

$2 billion in trading losses is a lot. Certainly would be hard for me to swallow. And that’s part of the problem with this kind of story. It’s pretty hard for us common folks to understand the scale and scope of Wall Street Investment activity, and when you have politically motivated “reporters” doing all they can to make these bankers seem evil incarnate, it gets even more confusing.

The LA Times’ Michael Hiltzik tries to make JP Morgan CEO Jamie Dimon into a sneaky, lying, incompetent boob—or banker. The headline of his post on LA Times is “What Jamie Dimon didn’t tell you on ‘Meet the Press.’” I kept looking for the big disclosure.  Where is the bombshell that Hiltzik promises in the headline?

Hiltzik’s piece, other than a blatant and snarky attempt to discredit Dimon, is an outright plea for more banking regulations. His primary objection to Dimon and his communication about the trading fiasco is that Dimon is trying to avoid further regulation. Hiltzik says: Dimon’s theme was essentially as follows: “Hey, everybody makes mistakes — sure, we lost $2 billion, but we’ve still got billions more, and we’ll figure out this one ourselves without the need for any further regulations, thank you.”

 $2 billion in trading losses is a lot. And it would be quite right for the guy in London who made $100 million per year for the bank and who made these trades to reimburse the bank some of his huge salary. Also appropriate for the executive, Ina Drew who supervised the badly mistaken trader, to resign. But Dimon’s efforts on the conference call where this was revealed was right to try and put it in perspective. In fact, his effort at doing that is likely what really ignited Hiltzik’s ire.

That trader, called the London Whale because of his outsize portfolio he was playing with, was betting $350 billion of the bank’s money. The puts the $2 bn loss in a little bit of perspective. If I was playing around with $350,000 with the objective of making the highest return possible, I’d probably take some big risks with some of it and probably lose some of it. $2000 in losses out of $350,000 wouldn’t seem so awful to me. But why would one trader have such control over $350 billion? It helps a little to see that the bank’s assets are $2.3 trillion. That’s trillion, with a T. Sorry, my mind stops at about ,000.

I don’t mean to belittle this mistake. But from what I see Dimon handled it quite well from a communication standpoint. He communicated about it quickly. He apologized for not being able to communicate about it faster. He called it “stupid.” Over and over. He made clear (as much as he could given the arcane language of hedging, credit default swap derivatives and all that stuff) the underlying error that was made. The people involved experienced a career ending event, and it may be that his career may yet end over this. What is not so clear to me, in the very brief overview I gave this, is exactly why one trader was given so much to play with, with apparently so little supervision, and what exactly will be done to prevent this kind of error in trading judgment from happening again.

Hiltzik’s answer is more regulations. Someone needs to tell him that the government simply can’t regulate all risk away, as much as folks like him might want it. The stupidity demonstrate by JP Morgan in management that led to this disaster is one problem that I’m confident smart managers and the competitive market can fix. But what can’t be fixed so easily is the easy target that banks have become for the likes of Hiltzik, who like the politicians they seem to want to be, appeal to the fear and outrage of the people hurt in the financial crisis to promote their legislative agenda. And what really needs to be fixed, is the editorial staff of the LA Times to allow this kind of demagoguery to go on parading as reportage.