The JPMorgan earnings report revealed that the trading loss grew to $4.4 billion, more than double the original estimate of $2 billion after a failed bet in the derivatives market in May. The bank posted revenues of $5 billion, ensuring that it will stay in the black for at least this quarter.
Michael de la Merced, a New York Times reporter with Dealbook, discusses the transformation that JPMorgan has undergone from a standard bank to a high-powered player in the investment market. "JPMorgan has prided itself on two things: one, it's prided itself on being smarter than a lot of its competitors, and its ability to get into a a lot of riskier situations and not let itself get burned; but on the other hand it also claims to have a 'fortress balance sheet,' meaning it's got a lot more cash on hand [and] can withstand a lot of shocks better than its competitors."
Throughout the quarter, the bank's more traditional business of lending out to individuals and corporations has improved; it is the investment side of the business that has suffered the most, and the massive loss may lead to a closer examination of its strategies.
"Clearly they were able to withstand this, but the whole issue with the $4.4 billion loss is still that is does raise questions about the firm's risk management, about its ability to rein in its traders when they go too far astray," de la Merced says. "I don't know that that's necessarily been solved."
William Cohan is a former investment banker and author of "Money and Power: How Goldman Sachs Came to Rule the World." He calls JPMorgan's actions a "necessary evil". With $700 billion in commercial loans, Cohan agrees with Dimon's point during the congressional hearings that the bank has to work to mitigate those risks. "It's the nature of banking today," Cohan says. "They're so big [and] they've got they're fingers in so many pies that they have to do this."
"[Dimon]'s done an amazing job, but he's saying, 'I can't know everything,'" Cohan says. "I think he's the kind of guy who's going to learn from this, but again, this doesn't make it right. Why these banks are taking these kind of risks to begin with is something that I think we have to ask ourselves in a very fundamental way." Cohan describes Dimon as a legendary hands-on manager, and is looking forward to finding out how an executive with such a reputation let this failed bet get by.
The report brings with it some restored confidence and security to the market. "Now that there is some sense of where things lie, I think people might feel a bit more comforted," de la Merced says. "We'll see what happens a little down the road."