Is Jamie Dimon Conflicted As The CEO Of JPMorgan Chase & New York Fed Board Member?
The $2 billion dollar trading loss at JPMorgan (JPM) has kicked off a firestorm of commentary and conjecture about TBTF banks and what should be done. Many are calling for the Volcker Rule to ban proprietary trading by commercial banks and others are suggesting that we reinstate Glass-Stegal Act to separate commercial and investment banking. It seems that more regulation is coming to the banking sector like it or not.
To make matters worse, Fitch and S&P downgraded JPM on Friday. Fitch views the size of loss as "manageable... but the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity". The SEC is now reviewing the events that led up to the loss.
Prior to this trading loss, there was uncertainty for banks which has resulted in share losses of more than 15% over the last month. This latest trading misstep by the CIO group has added fuel to the fire.
If that wasn't enough, now some lawmakers are going a step further and calling for Jamie Dimon to relinquish his seat on the New York Federal Reserve Board of Directors. The Fed's core mission is to supervise and regulate financial institutions. Dimon is obviously qualified to serve on the board of directors. Jamie is after all running the largest U.S. bank with over 260,000 employees and more than $2.6 trillion in assets. Lawmakers are making the case that while qualified, he might not be able to manage the inherent conflicts with dual roles as CEO and NY Fed BOD member.
Regardless of your views on the potential conflicts of interest, the entire sector is paying the price for the confusion and uncertainty. Both market and regulatory uncertainty are weighting of the banks. This is reflected in the price to book values below.