On Friday morning, Jamie Dimon as head of the bank many (well, some: Zero Hedge [9]) expect will be the first casualty when the Liebor scandal finally breaks on US soil, which it will within 2-3 weeks, faced several questions on his Q2 conference call trying to extract more information from the bank as to where it may stand in the Liebor scandal.
This is what he said:
Unidentified Analyst
Hi, two very quick follow-ups. One I just want to make sure on the LIBOR issue. I understand all the things that you can’t talk about mid investigation, but I’m assuming this has been gone on for a while that you’ve had three, six, maybe more months of internal investigations. Is there anything you can tell us and comment on?
Jamie Dimon
No.
...
John E. McDonald – Sanford C. Bernstein & Co.
But I guess just one more slide that’s on the LIBOR, do you have any sense of how long the issue will overhang on the industry and whether we’ll get some kind of clarity about the investigations over the summer or is it something that could drag on for long time? Any insight in that and when we’re going to get more information on it?
Jamie Dimon
We had no special insight again.
...
Matt O'Connor – Deutsche Bank Securities
...LIBOR obviously has been in the news quite a bit. If there is anything that you can say or even when will we know what we don't know instead of time-to-time or…
Jamie Dimon
All I can say is like all of these things, there are a lot of people doing exams, we’ll be open total openings regulators and investigators. And the other thing I’d be a little patient if I were you and not every thing is the same, it’s going to take a while and not all companies are in the same position.
...
Brennan Hawken – UBS Investment Bank
I don’t know if you can comment on this, but it would be helpful to
know, do you guys have specific controls that separate communications
between derivative traders and the LIBOR rate submission employees?
Michael J. Cavanagh
We are not going to comment anything right there right now.
It appears Jamie was not only not very talkative, but refused to answer questions why by default should have had an answer - i.e., internal controls, which after the discovery 10 minutes prior to the earnigs release that the bank had found a material internal controls weakness vis-a-vis CDS marks, is probably rather critical. Of course, the market being as headline drive as it is, took the lack of further Libor clarity as an "all clear" and send the stock up 6%. That may well have been rather premature. Because as the NYT reports, criminal charges are coming, which may explain JPM's reticence to say much if anything while it is the subject of a multi-year long criminal investigation which is about to break.
From NYT [10]:
As regulators ramp up their global investigation into the manipulation of interest rates, the Justice Department has identified potential criminal wrongdoing by big banks and individuals at the center of the scandal.
The department’s criminal division is building cases against several financial institutions and their employees, including traders at Barclays, the British bank, according to government officials close to the case who spoke on the condition of anonymity because the investigation is continuing. The authorities expect to file charges against at least one bank later this year, one of the officials said.
The prospect of criminal cases is expected to rattle the banking world and provide a new impetus for financial institutions to settle with the authorities. The Justice Department investigation comes on top of private investor lawsuits and a sweeping regulatory inquiry led by the Commodity Futures Trading Commission. Collectively, the civil and criminal actions could cost the banking industry tens of billions of dollars.
The multiyear investigation has ensnared more than 10 big banks in the United States and abroad. With the prospects of criminal action, several firms, including at least two European institutions, are scrambling to arrange deals, according to lawyers close to the case. In part, they are trying to avoid the public outcry that stemmed from the Barclays case, which prompted the resignation of top executives.
...
[T]he Libor case presents a potential opportunity for prosecutors. Given the scope of the problems and the number of institutions involved, the rate-rigging investigation could provide a signature moment to hold big banks accountable for their activities during the financial crisis.
“It’s hard to imagine a bigger case than Libor,” said one of the government officials involved in the case.
Now here is the punchline: as the Fed itself reported [11], at the time of alleged manipulation, there were 16 USD libor Panel banks.
[12]
And here one can bet good money, that the Justice Department, long seen as the most corrupt and coopted executive arm (thank you Eric Holder) and about as useless as the SEC, will focus on the US banks members of the USD Libor Panel.
There are three of them:
- Bank of America
- Citibank
- and... JP Morgan
In other words, there is roughly a 33% minimum probability that JPM will soon be ensnared in one of the biggest, more comprehensive cases of collusive and manipulative bank fraud in the history of the banking. And remember: the Fed will throw anyone under the bus [13] simply to redirect attention and anger from where it truly lies: with the academics who cogitate daily in the Marriner Eccles building, where they believe they are more efficient than the entire market when it comes to setting the price of money.
Even JP Morgan.
* * *
Off topic: on the JPM conference call someone who ordinarily would never be allowed to ask a question, did just that. Here is what he said:
Maybe from the perspective of the buy side, a long suffering shareholder and my clients, I’d like to follow-up on Mike Mayo’s question and also reference to KBW report that looked at the potential of splitting off the Chase Consumer Bank with RON credit and having a standalone JPMorgan Commercial bank, investment bank trust and TSS.
And the point being much as the tipping point or actual diseconomies of scale, and even if there are economies of scale, the stock market refuses to acknowledge it in terms of the multiple continuum to come down. And I look at the track record over the past year, so and notwithstanding a great performance relative to a pretty low VaR. but it's still a good performance. But we've had the mortgage servicing issues, mortgage foreclosure issues, and military veteran issues, energy, commodities, sales practices, now that’s inexcusable, just unbelievable CIO debacle, and now potentially LIBOR. And I think about, what has to happen for either you as a management team or you as a board to finally say, we are a great institution and we own a lot of great businesses, but we have reached that point where we are too big to manage, and in the interest of our shareholders there’s a different corporate structure that would better serve your owners. Thank you.
Someone gets it. But not Jamie Dimon. His response why he is perfectly happy being a TBTF bank with great economies of scale, and even greater embedded fragility.
Jamie Dimon: Right, I would respectively say that, yeah certainly the cross-sell is very obvious, and that's why we’re not look at separating into numerous companies, but I'm just wondering at what point it does become more apparent that there are diseconomies and is it potential that, is it possible to have CIO in part of a smaller institution, it would have gotten the management look that it required....You could have argued the other way, there is a huge source of strength that helps growing this company, do all these norms and do best during the involvement, do all these wonderful things, CIO was a mistake, and we’re sorry.
Yes, and the next time JPM blows up, we will all be sorry.