Obama weighs in on JPMorgan loss
NEW YORK — President Barack Obama said Monday that a $2 billion trading loss suffered by JPMorgan Chase is "why Wall Street reform is so important."
"We don't know all the details," Obama said, but "it's going to be investigated."
The bank's loss, which resulted from a massive bet on derivatives, has sent shockwaves through financial markets and caused JPMorgan shares to drop 12% over the past two trading sessions.
Earlier on Monday, the bank announced the retirement of Ina Drew, the firm's chief investment officer and the supervisor of the bank's chief investment office.
That office, which makes trades designed to hedge against risk, had amassed a large position in credit-default swaps that began to sour in recent weeks.
Net losses, after factoring in other securities gains, are expected to exceed $800 million by the end of the second quarter. And losses could increase depending on market conditions and the bank's actions moving forward.
Obama said that the loss is an example of why financial reform is needed.
"JPMorgan is one of the best managed banks there is," Obama said during a taped interview that will air on ABC's The View. "Jamie Dimon, the head of it, is one of the smartest bankers we got, and they still lost $2 billion and counting."
Advocates for more government regulation of banks have cited the trades as evidence that JPMorgan was making an end-around the Volcker Rule.
That rule, a part of the Dodd-Frank Wall Street reform law passed in response to the financial crisis, aims to ban risky trading by banks for their own profit, sometimes referred to as proprietary trading.
The rule has not yet been implemented, and banks have spent millions of dollars lobbying against it, which they view as cumbersome and excessive.
Dimon, JPMorgan's CEO and chairman, said on a conference call last Thursday that the trades "didn't violate the Volcker rule."
But he added that "it's very unfortunate ... it plays right into the hands of pundits out there, but that's life."
The Senate Banking Committee on Monday announced future oversight hearings, including one that will look into the trading losses at JPMorgan from a regulatory angle.
And on Friday, lawmakers who helped craft the Volcker Rule denounced JPMorgan's trades.
"The law very clearly already excludes this activity," Sen. Carl Levin of Michigan said in a call with the media.
"It specifically says that every single position that you take as a hedge has got to be tied to a specific risk arising from another specific position. Now, that's about as clear as you can write. So the regulators are now hopefully going to implement the law as written."