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The ethical deal

JP Morgan: Should there be a trading halt on derivatives?

The content and tone of Jamie Dimon’s telephone call to analysts explaining JP Morgan Chase’s regulatory filing to the Securities and Exchange Commission reporting a $2 billion loss in derivative trading demonstrate that the true cost to the bank should be measured in ideational and reputational terms.

The trading loss was an ‘egregious’ error, the result of ‘self-inflicted’ mistakes that ‘violate our own standards and principles’ and which ‘plays right into the hands of a whole bunch of pundits out there,’ he conceded.

The reputational damage is magnified by the fact that the losses reflected poor risk management within what the firm terms its Chief Investment Office.

Buried within the filing (page 9), the firm notes that the ‘CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed.’

The frank admission of ‘sloppiness and bad judgement,’ and determination that the firm would ‘admit it, we will learn from it, we will fix it, and we will move on’ was an exercise in damage limitation.

It is an exercise that is by no means assured of success. Although by no means itself materially catastrophic for a firm with such formidable reserves, the losses have significantly reduced the authority of the bank to lead the campaign to dilute the proposed ban on proprietary trading.

Full details on the CLMR portal at

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