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Wall Street’s golden boy Jamie Dimon found himself yesterday feasting on a $2 billion slice of humble pie.
The JPMorgan Chase chief, who has railed against prohibitions against banks trading their own cash, stunned the markets by revealing his investment desk will be forced to book a tremendous and embarrassing loss trading a portfolio of complex derivatives.
“This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed,” the bank said in a regulatory filing.
Dimon ditched the diplomacy later in a hastily convened 5 p.m. conference call announcing the loss: “This is not how we want to run a business.”
Wall Street took out its vengeance, bidding down JPM shares 6 percent in after-hours trading, to $38.61.
The losses are largely derived from a so-called proprietary trading arm of JPMorgan Chase known as the Chief Investment Office, in which the firm invests excess funds to make a profit.
Most of the derivatives positions were amassed over the past few months and were tied to the fiscal soundness of European companies, sources said.
The losses were disclosed after earlier reports discussed a London-based derivatives trader at JPMorgan named Bruno Iksil, known on the Street as the “London Whale.”
Banking critics were quick to jump on Dimon’s stumble.
Just six weeks ago, Dimon, who many think is the most astute CEO in banking, was referring to reports about the risky bets in CIO as “a tempest in a teapot.”
“It’s just a mess now,” said analyst Meredith Whitney.
The CIO unit, led by Ina Drew, had been on track to generate a $200 million profit for JPMorgan but instead is set to spill $800 million in red ink, after tax, Dimon disclosed on the conference call.
Drew, sources said, is one of a number of CIO executives under review.
“In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored,” said Dimon, who could take a hit to his reputation costlier than the financial damage felt by the bank.
Dimon’s embarrassing mea culpa adds fuel to the defenders of the proposed Volcker Rule just as language is being crafted in Washington.
Had the Volcker Rule been in effect, such trading would have been prohibited.
“I’ve been an analyst for a long time and I just don’t understand how this could go so bad, so fast,” Nancy Bush independent bank analyst at NAB Research told The Post.
Meredith Whitney noted that JPM’s misstep couldn’t come at a worse time.
“[Dimon] just granted the Volcker committee everything they need to write this law in one fell swoop,” Whitney said.