You would have thought that news of USD2 billion in losses incurred by JPMorgan’s chief investment office from trading in indices tied to credit default swaps would have fuelled some schadenfreude among the firm’s competitors, but among senior market observers that has not been the sentiment in recent weeks.
The issue is Jamie Dimon and his influence and status as the financial markets’ chief and most successful lobbyist. As the market hovers over the cliff of regulatory change, particularly surrounding derivatives, any diminishing of Dimon’s clout in regulatory circles could result in some of the more painful rules that have been alluded to by regulators being enforced. This is the biggest fear amongst the trading community and is why the majority are remaining hush on the losses. “If you consider all the lobbying efforts made to regulators, particularly in the U.S., then it is Jamie Dimon, particularly, that they stand up to and listen to, especially when it comes to the proposals around tightening the Volcker Rule,” one senior credit trader told DI.
The concerns are growing that the losses could potentially complicate lobbying efforts over the Volcker Rule. The U.S. Commodity Futures Trading Commission has launched an investigation into the trades made by JPMorgan, while there are reports that the U.S. Securities and Exchange Commission has also launched a probe. Calls by U.S. government officials to tighten the Volcker Rule, such as those from the U.S. Director of the National Economic Council, Gene Sperling, have put pressure on regulators to restrict bank trading activities further.
Whether the trades made by JPMorgan would be banned under the current draft of the Volcker Rule is still unclear since specifics around the trades have yet to be disclosed. But, if we go by comments made by regulatory officials over the last week, it seems there is intent to strengthen the Volcker Rule based on JPM’s losses, which could subsequently impact the trading operations of all financial institutions.
So when Dimon steps forward in front of the Senate Banking Committee next month, he won’t be testifying solely for JPMorgan. He will be carrying on his shoulders the weight and expectations of all financial services institutions. So his performance that day will ultimately shape the future trading operations of U.S. based financial services for generations to come.