JP Morgan chief apologizes for $2 billion loss
The CEO of JPMorgan Chase offered a quick but blunt apology to shareholders Tuesday for a $2 billion trading loss that "should never have happened" and survived a push to strip him of the title of chairman of the board.
CEO Jamie Dimon, who in recent years has given expansive answers to questions about the bank's handling of foreclosures and loan modifications, was unusually subdued at the JPMorgan annual meeting.
He spent four minutes talking about the trading loss and steps the company has taken to address it, and just two more talking about accomplishments of the company over the past year.
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The loss, disclosed Thursday, rattled investor confidence in the largest bank in the United States and in the ability of Wall Street to fight regulatory changes more than three years after the financial crisis.
It also added some theatrics to the JPMorgan annual meeting, traditionally a staid affair. Reporters swarmed, police with guns stood guard on the roof, and protesters threw eggs at a poster with Dimon's picture on it.
Of the trade, an ill-timed bet on so-called credit derivatives, Dimon said: "This should never have happened. I can't justify it. Unfortunately, these mistakes are self-inflicted."
Speaking with reporters later, he added: "The buck always stops with me."
Dimon won a non-binding shareholder endorsement of his pay package from last year, which totaled $23 million, according to an Associated Press analysis of regulatory filings.
Most of the shareholder ballots were cast in the weeks before Dimon revealed the trading loss. The pay package passed with 91 percent of the vote. The vote to strip him of the chairman's title won only 40 percent support.
Dimon was confronted at the meeting by shareholders upset about the trading loss. To some questions, he offered a simple, "OK, thank you."
The Rev. Seamus Finn, representing shareholders from the Catholic organization Missionary Oblates of Mary Immaculate, said that investors had heard Dimon apologize before for the foreclosure crisis and other problems.
"We heard the same refrain: We have learned from our mistakes. This will never be allowed to happen again," Finn said. "I can't help wondering if you are listening."
Lisa Lindsley, director of capital strategies for an influential union of public employees that is also a major JPMorgan shareholder, said independent board leadership was in shareholders' best interest.
"An all-powerful CEO is his own boss," she said. "Looking for an infallible CEO is a fool's errand."
Most large American companies combine the jobs of chairman and CEO, but shareholders have pushed in recent years to separate them. About one in five Standard & Poor's 500 companies separate the jobs.
Supporters argue that an independent chairman can provide a check on the CEO's power. Shareholders also frequently push for separation at turbulent times for a company.
In JPMorgan's case, the move to separate the jobs was put on the ballot before the $2 billion loss was unearthed. It was also on the ballot last year, but it received far less support then, 12 percent.
While the meeting took place, JPMorgan stock climbed for the first time since the trading loss was revealed. It had fallen from $40.74 last Thursday to $35.79 after Monday's trading, but bounced back to $36.24 on Tuesday.
Dimon said he did not expect the trading loss to jeopardize JPMorgan's quarterly stock dividend, which is 30 cents per share.
A law enforcement official said that the FBI's New York office is heading an inquiry by the Justice Department into the JPMorgan loss. The official, who was not authorized to speak about the decision, spoke on condition of anonymity.
The official characterized the inquiry as preliminary.
Dimon got something of a vote of confidence from President Barack Obama, who appeared on ABC's "The View" for an episode airing Tuesday. Obama used the appearance to press for tighter regulation of Wall Street.
"JPMorgan is one of the best-managed banks there is," the president said. "Jamie Dimon, the head of it, is one of the smartest bankers we got, and they still lost $2 billion and counting."
Obama has reason to tread carefully on the JPMorgan trading debacle. Four years ago, when he captivated Wall Street during his first presidential run, JPMorgan employees were among his most ardent financial backers.
People who said they worked for JPMorgan Chase gave more than $800,000 to Obama in 2008, compared with $340,000 for his Republican opponent, Sen. John McCain.
Obama is struggling with Wall Street's resentment this year. His campaign has received barely more than $75,000 in donations from JPMorgan employees, while Mitt Romney has attracted more than $370,000.
Obama said the bank was "making bets" in the market for the complex financial instruments known as derivatives. Dimon has said the bank was hedging against financial risk.
A part of the 2010 financial overhaul legislation known as the Volcker rule is designed to prevent banks from placing bets for their own profit, a practice known as proprietary trading.
The idea is to protect depositors' money, which is insured by the government. If a bank's losses wiped out those deposits, the government would be on the hook.
Former Federal Reserve Chairman Paul Volcker, for whom the rule was named, wanted speculative trading by investment banks to be separated from the deposit-taking and lending business of traditional commercial banks.
Dimon and critics of the industry have disagreed over whether JPMorgan's trading would have violated that rule.
In Washington, Treasury Secretary Timothy Geithner said JPMorgan's trading loss strengthens the case for tougher rules on financial institutions, as regulators continue writing rules from the 2010 law.
Geithner said that the Federal Reserve, the Securities and Exchange Commission and the Obama administration are "going to take a very careful look" at the JPMorgan incident as they implement the rules.
"I'm very confident that we're going to be able to make sure those come out as tough and effective as they need to be," Geithner said. "And I think this episode helps make the case, frankly."
At the annual meeting for the investment bank Morgan Stanley, which took place Tuesday in upstate New York, CEO James Gorman appeared to allude to the JPMorgan trading loss when he said: "Events of the last few days remind us that risk levels remain high in the global markets."
He noted twice that Morgan Stanley has jettisoned or is in the process of dumping all of its businesses that do proprietary trading, or trading for the bank's own profit.
Gorman also said, unprompted, that the bank maintains the right to take back pay from executives who act improperly. Gorman was confronted by shouting protesters who said the loss at JPMorgan was proof that banks are out of touch with their customers.
On Monday, Ina Drew, JPMorgan's chief investment officer and one of the highest-ranking women on Wall Street, left the bank. Drew oversaw the trading group responsible for the $2 billion loss.
