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Obama says JPMorgan loss proves reform needed
US President says even Wall Street's "smartest" need regulating, as bank boss admits $2bn trading loss was "stupid".
Last Modified: 15 May 2012 05:57

US President Barack Obama has said that the huge trading loss at JPMorgan Chase, the country's biggest bank, has demonstrated the need for Wall Street reform.

"JPMorgan is one of the best managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion and counting," Obama said on ABC's "The View," according to a transcript released by the US network on Monday.

"We don't know all the details. It's going to be investigated, but this is why we passed Wall Street reform," Obama said, adding that the same kind of error at a less stable bank could have required government intervention.

Dimon has led US banks in fighting the proposed Volcker Rule, which would ban so-called proprietary trading, when banks trade on their own accounts. Banks are also resisting curbs on their hedging activities.

Dimon told US network NBC's "Meet the Press" programme that the big loss incurred by the New York-based bank, which triggered a slide in banking shares on Friday, was "stupid" and damaging, but not bad enough to stop the company from making a profit this quarter.

Asked if JPMorgan's losses had given regulators new ammunition to clamp down on Wall Street after the US government spent billions to bail out financial institutions during the 2008 crisis, Dimon replied: "Yes, absolutely. This is a very unfortunate and inopportune time to have had this kind of mistake."

Martin Hennecke, associate director at Hong Kong-based financial advisory firm Tyche Group, told Al Jazeera that JPMorgan's loss was another indictment of the US banking system.

"We are particularly not fond of the US banking industry, which is like a casino gambling industry, especially since the Glass-Steagall Act was repudiated," he said, referring to the 1933 legislation established to regulate and limit speculation by banks which was repealed in 1999.

"The Glass-Steagall Act needs to be implemented again, otherwise it seems the banks pretty much do what they want.

"If they mess it up they get a bailout and if they do it right they don't care about what limits were broken, and so they would all be heroes and get huge payouts and bonuses."

Hennecke said: "So, we don't think the US banking industry is safe or stable to invest in. The much chastised Chinese banks that everybody loves to hate are much safer to invest in than banks in the US and Europe as well for that matter."

Al Jazeera's Kristen Saloomey, reporting from New York, said the JPMorgan's trading loss had reignited the debate in the US on regulating financial instutions.

"It [JPMorgan] is the largest bank in the US and it weathered the financial crisis in 2008 better than other financial institutions in the country," she said.

"And since then Dimon has been one of the most outspoken critics of efforts to regulate the finance industry, precisely the kind of risky trades that led to this huge loss. He has been quoted as describing efforts to regulate the market as infantile. He ridiculed the notion of banks being too big to fail.

"Now we are hearing calls for new congressional hearings on what went wrong with JPMorgan and renewed calls for tougher regulation to prevent it from happening again and putting the US and world economy at risk."

Top officer quits

Meanwhile, Ina Drew, JPMorgan Chase's chief investment officer, has announced her retirement in the wake of the loss, with two more senior execuitves expected to quit the company.

Drew is "retiring" after more than 30 years at the bank, JPMorgan said, but her departure came days after the bank reported a huge "egregious" loss that came under her responsibility at the bank's chief investment officer (CIO).

Our correspondent said that Drew's departure was an effort by JPMorgan to limit the fallout ahead of a shareholders' meeting on Tuesday. 

"This is a woman who was considered one of the most powerful women in Wall Street. Someone who was a top earner for the company," she said. 

"But these massive losses happened on her watch. So the company in an effort to limit the fallout from these huge losses is now taking steps to cleanhouse. The shares for the company plummeted on Friday by 9.3 per cent.

"Clearly this is an effort to stabilise things ahead of a shareholders meeting that is expected on Tuesday."

The Wall Street Journal said two other high-ranking executives were set to leave during the week: Achilles Macris, who heads the London-based desk that placed the trades, and trader Javier Martin-Artajo, a managing director on Macris' team.

London-based trader Bruno Michel Iksil, nicknamed the "London Whale" for the large positions he took in credit markets, is also likely to leave though it remains uncertain when he will do so, the Journal said.

Source:
Al Jazeera and agencies
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