The reputation that Jamie Dimon honed for decades on Wall Street has been severely damaged in a matter of days.
In the 1980s and 1990s, he was the protege of banking industry legend Sanford Weill. In the early 2000s, he took over Bank One, an institution few believed was fixable, and restored it to a profit.
And in 2008 and 2009, at JPMorgan Chase, Dimon built a fortress strong enough to stay profitable during the financial crisis.
His zeal for cost-cutting and perceived mastery of risk did more than keep JPMorgan strong enough to bail out two failing competitors, Bear Stearns and Washington Mutual. It gave him a kind of street cred during the post-crisis years, when he lashed out at regulators who sought to rein in banks, and Occupy Wall Street protesters who raged against them.
Now all that is on the line.
Dimon had to face stock analysts and reporters on Thursday and confess to a “flawed, complex, poorly reviewed, poorly executed and poorly monitored” trading strategy that lost a surprise $2 billion.
The revelation caused traders to shave almost 10 percent off JPMorgan’s stock price the following day and brought a shower of complaints from industry observers and lawmakers who said banks needed tighter scrutiny.
Making the black eye worse for Dimon, the loss came in derivatives trading, the complex financial maneuvering that _ on a much greater scale _ led to large losses and dissolved banks during the financial crisis.
Dimon “staked so much of his reputation on creating this perception of being the ultimate, infallible risk manager,” said Simon Johnson, a former chief economist of the International Monetary Fund who is now a professor at MIT. “And along comes this huge mistake.”
Dimon, 56, grew up in the Queens borough of New York City, the grandson of a Greek immigrant. His father was a stockbroker who worked for many years at Merrill Lynch.
After college and business school, Dimon turned down an offer from the venerable investment bank Goldman Sachs. Weill had been Dimon’s father’s boss at a previous job and recruited the younger Dimon to American Express.
Weill became Dimon’s mentor. When Weill left American Express in 1986, Dimon followed him to Commercial Credit Co., a sleepy finance firm that catered to middle-class clients.
Weill went on to buy a host of companies, including Smith Barney and Travelers, and Dimon led some of those divisions. The empire-building culminated when Travelers merged with Citicorp to form Citigroup in 1998, the largest U.S. bank at that time.
Dimon was the heir apparent but had started to clash with Weill. Weill was insecure about Dimon’s growing assertiveness, and Dimon often showed his temper in meetings. Weill fired Dimon in 1998.
Dimon spent time reading biographies of statesmen and took up boxing lessons to let off steam. In 2000, he became CEO of Bank One, a Chicago bank that was losing money. By 2003, he had turned the bank around, and in 2004 it merged with JPMorgan Chase. Dimon became CEO of JPMorgan in 2006.
By that time, Dimon had lived through several industry crises, including the savings and loan meltdown of the late 1980s, a Russian debt default in 1998 and the dot-com stock bust of the early 2000s.
Dimon was not the man responsible for any of those, of course, as he is for the $2 billion error.
His admission of the mistake this week left some analysts asking whether his grip is slipping, and the bank’s more than $2 trillion in assets have become too big for him to manage.
More likely, some other analysts said, it is a statement about how, three and a half years after the crisis, banks still conduct impossibly complex trades that are difficult to track.
“If even Jamie gets it wrong managing a $2 trillion bank, what does it say about banks where management is far inferior?” said Mike Mayo, a bank analyst at the brokerage CLSA and author of the book “Exile on Wall Street.”
Just a few weeks ago, while answering questions from stock analysts, Dimon dismissed media reports of big market-moving trades by JPMorgan as a “complete tempest in a teapot quick payday loans.”
He admitted Thursday that he should have been paying better attention. Asked to what, he first said trading losses then said, “There was some stuff in the newspaper and a bunch of other stuff.”
Dimon’s signature trait has been cost-cutting, an attribute that helped the banks he led squirrel cash away. At Bank One, after finding out how many newspaper subscriptions the bank paid for, he is reported to have told an executive: “You’re a businessman; pay for your own Wall Street Journal.”
That low tolerance for profligacy kept the banks he managed strong enough to weather any crisis. Now, Dimon says the trade that was conducted is so complex that the losses could easily get worse.
JPMorgan’s $2 billion loss was caused by trades that were meant to hedge, or protect, the bank from trading losses that could occur in the investments of the bank’s corporate treasury.
The amount of the loss was small for an institution of JPMorgan’s size _ it cleared $19 billion in profit last year _ but will hurt its second-quarter earnings and was an embarrassment. It rattled the industry, too. Other bank stocks fell as much as 4 percent Friday.
“It puts egg on our face, and we deserve any criticism we get,” Dimon said at a hastily convened conference call with investors to reveal the losses.
During the crisis in 2008, Dimon drew wide praise for keeping his bank healthy, including from President Barack Obama and billionaire investor Warren Buffett. One biographical book that was released soon after the financial crisis was titled “Last Man Standing.”
In the years since, other Wall Street bankers and CEOs have cowered as the public backlash against bankers and their bonuses has grown. But Dimon, who made $23 million last year, according to an Associated Press calculation, used his stature to become the most outspoken banking CEO.
He attacked any obstacle that came in his way or his company’s _ especially regulations aimed at stopping banks from taking the kinds of risks that precipitated the financial crisis. Dimon viewed them as impediments to the bank’s ability to make a profit.
He did not even spare the Federal Reserve chairman, Ben Bernanke, or one of his iconic predecessors, Paul Volcker. At times, his outspokenness took on a swagger that raised eyebrows.
At a public forum last year, Dimon pointedly challenged Bernanke to defend his regulatory drive, which he said was going to slow down the U.S. economic recovery.
Earlier this year, Dimon said in a Fox Business Network interview: “Paul Volcker, by his own admission, has said he doesn’t understand capital markets. … He has proven that to me.”
One of the most respected Fed chiefs, Volcker has championed a law that restricts banks from trading with their own money.
Since Thursday, Dimon has contended the trades in question were meant to manage the bank’s financial risk, not turn a profit, and thus would not be subject to the so-called Volcker rule.
Outside analysts have been more skeptical, and the mistake has breathed energy into the push to toughen financial regulations. Dimon did say that he should have been paying closer attention.
“We know we were sloppy. We know we were stupid. We know there was bad judgment,” he told NBC News on Friday in an interview to air Sunday on “Meet the Press.”
He said he did not know whether laws had been broken and invited regulators to look into the matter. “But we intend to fix it and learn from it and be a better company when it’s done,” he added.
Most analysts gave Dimon kudos for coming clean on the trading loss, but few disagreed that his reputation had taken a severe hit.
Said Nancy Bush, longtime bank analyst at NAB research, and contributing editor at SNL Financial: “Jamie certainly cannot be standard-bearer for the banking industry anymore.”
Lending cash to individuals looking for cash advance or payday loans.
A feud over the riches of South Korea’s Samsung business empire has erupted in public as family members prepare to take an inheritance battle to court.
Lee Kun-hee, chairman of Samsung Electronics Co., which is the flagship company of the Samsung conglomerate, is facing off against his older brother, a sister and a nephew’s wife who all want a bigger piece of the Samsung cake.
The court battle might upset a dynastic succession in Samsung’s leadership as it could result in the unraveling of a cross-shareholding structure that allows Lee Kun-hee to control the group as a minority shareholder.
Lee, who is South Korea’s wealthiest individual, on Tuesday took the rare step of publicly attacking his brother, Lee Meng-hee, declaring on YTN television that the 81-year-old “has been already kicked out from our home.” Lee Meng-hee had earlier called his brother “greedy” and “childlike.”
Battles for control of Chaebol, South Korea’s family-controlled industrial groups that wield immense power over the economy, are not uncommon but it is unusual for the internal wrangling to become public.
Lee Meng-hee filed a lawsuit in February, demanding more than 700 billion won ($613 million) of shares in Samsung Life Insurance Co. and other companies. Similar claims followed by Lee’s older sister and the wife of a dead nephew.
Lee Kun-hee, the third son of Samsung founder Lee Byung-chull, was tapped in 1979 by his father to lead what would become South Korea’s most valuable company. The decision apparently disappointed Lee Meng-hee who later wrote in his autobiography that he had thought his father would turn over the throne to him.
The 70-year-old Samsung chairman has refused to settle the dispute out of court. A date for the first hearing in the case will be announced after the court reviews responses from Samsung, said lawyer Jeong Jin-su of Yoon & Yang LLC, which represents the three plaintiffs.
The family members have taken to public denunciations that are being lappped up by local media.
“I’m trying to retrieve my property that Lee Kun-hee has been hiding for 25 years,” his sister Lee Suk-hee said in a statement released by the law firm.
Learn what faxless payday loans are and how online payday loans can be used as a quick fix to pay off your bills.
Spain will restore border checks and suspend the treaty that makes the EU frontier-free for travelers as it hosts a European Central Bank meeting next month.
An Interior Ministry official said Friday the so-called Schengen Treaty will be suspended right before and during the May 3 meeting in Barcelona. The bank’s governing council meets outside its Frankfurt headquarters periodically.
Spain is suspending the accord because it believes large numbers of protesters will come to Barcelona, in particular people from Italy and Greece, which are reeling under austerity measures guaranteed fast personal loans.
The official spoke on condition of anonymity in line with ministry policy.
Barcelona saw riots during a March 29 general strike. A beefed-up police presence is planned for the ECB meeting.
The U.K. trade deficit widened to the most in three months in February as exports of cars and heavy machinery fell, especially to the U.S., China and Russia.
The goods-trade gap widened to 8.77 billion pounds ($14 billion) from a revised 7.88 billion pounds in January, the Office for National Statistics said today in London. The median of 18 forecasts in a Bloomberg News survey was for a deficit of 7.65 billion pounds. Exports fell 3.4 percent while imports were unchanged.
Prime Minister David Cameron is in Asia this week, leading a trade and diplomatic mission seeking to boost commercial ties with the region. The government hopes exports can bolster the British economy as manufacturers cope with rising unemployment and inflation that
Walgreen Co. has already suffered punishing losses since December, when it ended its contract with Express Scripts after a bitter public dispute over pharmacy reimbursement rates.
And with this week’s merger of Express Scripts and Medco Health Solutions Inc, Walgreen will have to contend with an even larger giant.
Now commanding more than 40 percent of the pharmacy benefit management market, north St. Louis County–based Express Scripts Holding Co. likely will likely demand big concessions from other drug store chains and grocery markets that operate pharmacies.
Walgreen standoff with Express Scripts provides a telling test case of industry fears that the now super-sized Express Scripts, the nation’s biggest PBM, wields too much market power. Critics of the merger have contended the merger will give Express Scripts unchecked ability to force untenable contracts on retail pharmacies, while pushing consumers into getting their drugs by direct mail.
For now, Express Scripts plans to operate Medco as a stand-alone business. Express Script “absolutely will have more negotiating gower in dealing with both the chains and the independents,” said Jeff Jonas, a stock analyst at Gabelli & Co, an investment management firm in Rye, N.Y. “But they need to integrate the companies first, which could take up to 18 months.”
Jonas estimates that Walgreens stands to lose $4 billion in revenue in 2012 — about 6 percent of its total revenue — due to lost prescription sales from the Express Scripts contract, and could lose another $3 billion in 2013.
Walgreen Co. Vice President Michael Polzin said the company intends to honor its existing contract with Medco, but would not disclose when that contract is set to expire. Express Scripts spokesman Brian Henry also declined comment on the specifics of the Medco-Walgreens contract.
Employers contract with pharmacy benefit managers to cover their workers’ drug benefits. PBMs then deliver drugs through the mail or reimburse pharmacies for filling prescriptions.
From Walgreen’s perspective, the only thing worse than losing the Express Scripts deal would have been taking it.
“We firmly believe that this decision was in the long-term interests of our customers, employees, and shareholders,” said Michael Polzin, a Walgreens vice president. “We expect the short-term impact to lessen over time. If the same terms are offered to us by another company, it still wouldn’t be in our long-term interest to accept those terms.”
In the meantime, Walgreen will pursue a strategy of aggressively seeking deals with small and mid-sized pharmacy benefit managers and remaking its stores to offer a wider array of health and wellness services to consumers. And it’s trying to get lean for the challenges ahead, cutting costs at its corporate offices in Deerfield, Il., which began several months ago and will continue, probably including layoffs, Polzin said.
Walgreen has largely shied away from public comments about the Express Scripts-Medco merger, but other drug store and supermarket representatives have asserted that consumers will lose as Express Scripts drives up prices and profits.
Express Scripts, which has built its business on cutting health costs, counters that economies of scale resulting from the deal will in fact drive down consumer prices. “We have a robust and competitive industry, by any analysis,” said Express Scripts’ Henry. “We’re going to have to compete against a large number of PBMs who have their own special niche in the marketplace. … We believe we have a very healthy relationship with over 60,000 retail pharmacies and that will only continue.”
Walgreens dropped its contract with Express Scripts on Jan. 1 after months of stalled talks, and has seen its rivals — including CVS Caremark, WalMart, and Rite-Aid, along with supermarket pharmacies — openly advertise that their readiness to fill prescriptions of Express Scripts members. And those competitors have picked up a sizeable chunk of Walgreens’ business.
The drug store chain reported March sales of $6.02 billion, a decrease of 4.3 percent from the previous year.
“The negative impact on comparable store prescriptions filled due to no longer being part of the Express Scripts, Inc. pharmacy network was 10.7 percentage points,” Walgreens disclosed Thursday in a news release.
Meanwhile, Moody’s Investors Service on Thursday downgraded Walgreen’s credit rating by one small notch. The rating service voiced concern about the drug chain’s ability to win back Express Scripts customers.
So the conventional wisdom is that the Express Scripts-Medco merger puts Walgreens over an even deeper barrel. Walgreens might get along without Express Scripts but probably can’t afford to lose Medco, said Judson Clark, a stock analyst at Edward Jones & Co. in Des Peres.
“It’s in the best interest of Walgreens to get a deal done,” Clark said.
Walgreens “made an attempt to play hardball with Express Scripts and it didn’t work. It looks like it’ll be difficult for Walgreens to grow with this hanging around their neck.”
Meanwhile, Walgreens is expanding its health-related business beyond the traditional pharmacy. Since November 2010, Walgreens has opened about 200 “wellness format” stores in Chicago, Indianapolis, and through its subsidiary, Duane-Reade locations, in New York.
The stores offer immunizations, health testing, disease management progreams, and the treatment of minor ailments such as skin rashes, with the goal of lowering overall healthcare costs. The stores accept insurance payments but also have cash prices.
“We’re looking to focus overall on health, pharmacy and wellness. To help people live well, stay well, and get well,” Polzin said. “And that means creating a new pharmacy and health experience … Expanding fresh healthy food offerings in the store. Bringing more beauty and cosmetic services.”
— Jim Gallagher of the Post-Dispatch contributed to this report
Thailand kept its key interest rate unchanged, pausing after two reductions as it raised its forecast for economic growth this year and predicted inflation pressure may increase. Stocks and the baht rose.
The Bank of Thailand held its benchmark one-day bond repurchase rate at 3 percent, it said in Bangkok today, a decision predicted by 19 of 21 economists in a Bloomberg News survey. The other two forecast a 0.25 percentage-point cut.
Central banks from Australia to South Korea refrained from cutting rates this month as higher energy costs boosted inflation risks, reducing the scope for monetary stimulus to counter a Chinese slowdown and Europe
Newspapers need to prioritize digital advertising sales if they expect to thrive, according to a Pew Research Center study released Monday.
As advertisers shift spending from traditional print media to the Internet, newspapers are failing to make up for the decline in print advertising revenue with gains in online ads. Pew studied 38 large and small newspapers and found that for every $7 in print ad revenue declines, the companies only generated about $1 in new digital advertising sales.
The study suggests, however, that newspapers have the power to change _if they alter their approach to advertising sales. Papers with the largest circulations and biggest sales forces do a better job increasing online ad sales. But even newspapers with a daily circulation of less than 25,000 printed copies show hefty digital gains with a properly aligned sales force, training and commissions that encourage online ad sales.
“The notion that you can only have success in digital if you’re bigger is not what we found,” said Tom Rosenstiel, director of the Pew’s Project for Excellence in Journalism. “You can have success even at small papers if you’re willing to change the culture.”
The newspapers provided Pew with financial data for its study, on the condition that they would not be identified. One newspaper, with a circulation of about 20,000 copies and over $8 million in annual print revenue, managed to boost its annual online ad revenue by 63 percent to more than $500,000 in 2010 payday advance lenders. In 2011, its digital ad revenue grew about 33 percent.
The newspaper’s publisher told Pew researchers that the company had aggressively sought to hire ad salespeople who focused on online ads _ mainly display and classified ads. Now, “almost everything we sell has a digital component,” the publisher told the center.
For all the newspapers that participated, print ad revenue fell 9 percent while digital ad revenue grew 19 percent. Since print ads still account for about 92 percent of ad revenue, the small decline in print has had a much bigger impact on than the digital gains.
The huge chunk of revenue that still comes from print ads can also skew the behavior of salespeople, many of whom work on commission.
Many newspapers are attempting to transform. Pew found that three quarters of the newspapers it studied had changed their commission structure to encourage more digital ad sales. One newspaper now pays a 20 percent commission on digital ads but just 8 percent on print ads.
BERLIN
The ruling this week overturning a new state fund for science startups is likely headed to higher court.
Attorney General Chris Koster said Wednesday he plans to file an appeal of a Cole County judge’s ruling that declared the Missouri Science and Innovation Reinvestment Act to be unconstitutional.
Circuit Judge Dan Green tossed out the law in a ruling late Monday, saying it was invalid because lawmakers included a “contingency clause” when they passed it last fall, requiring a broader tax credit reform bill to be passed before MOSIRA could take effect. The tax credit bill never passed, and opponents of MOSIRA sued when Gov. Jay Nixon started implementing the science fund.
In a statement, Koster said MOSIRA is too valuable to let die on a technicality.
“(MOSIRA) is an important economic development tool that can bring high-tech jobs to Missouri and preserve jobs that are already here,” he said. “I don’t want to see important job-creating legislation fail. We intend to appeal this matter to its conclusion.”
Supporters of MOSIRA have said they also plan to push for a clean up-or-down vote on the matter in the General Assembly this session.
Gasoline prices have never been higher this time of the year.
At $3.53 a gallon, prices are already up 25 cents since Jan. 1. And experts say they could reach a record $4.25 a gallon by late April.
“You’re going to see a lot more staycations this year,” says Michael Lynch, president of Strategic Energy & Economic Research. “When the price gets anywhere near $4, you really see people react.”
Already, W. Howard Coudle, a retired machinist from Crestwood, Mo., has seen his monthly gasoline bill rise to $80 from about $60 in December. The closest service station is selling regular for $3.39 per gallon, the highest he’s ever seen.
“I guess we’re going to have to drive less, consolidate all our errands into one trip,” Coudle says. “It’s just oppressive.”
The surge in gas prices follows an increase in the price of oil.
Oil around the world is priced differently. Brent crude from the North Sea is a proxy for the foreign oil that’s imported by U.S. refineries and turned into gasoline and other fuels. Its price has risen 11 percent so far this year, to around $119 a barrel, because of tensions with Iran, a cold snap in Europe and rising demand from developing nations. West Texas Intermediate, used to price oil produced in the U.S., is up 4 percent to around $103 a barrel. That’s 19 percent higher than a year earlier.
Higher gas prices could hurt consumer spending and curtail the recent improvement in the U.S. economy.
A 25-cent jump in gasoline prices, if sustained over a year, would cost the economy about $35 billion. That’s only 0.2 percent of the total U.S. economy, but economists say it’s a meaningful amount, especially at a time when growth is only so-so. The economy grew 2.8 percent in the fourth quarter, a rate considered modest following a recession.
Gas prices are already an issue in the presidential campaign. Republican candidate Newt Gingrich spoke several times this week about opening up more federal land to oil and gas drilling as a path toward U.S. energy independence _ and lower pump prices.
“Our goals should be to get gasoline to $2.50 or less so that working families can actually get to work and retired families can travel,” Gingrich said at a campaign event in Los Angeles Thursday.
High oil and gas prices now set the stage for even sharper increases at the pump because gas typically rises in March and April.
Every spring, refiners suspend operations to switch the type of gasoline they make. Supplies of wintertime gas are sold off before March, when refineries need to start making a new formula of gasoline that’s required in the summer.
That can mean less supply for service stations, resulting in higher gas prices. And summertime gasoline is more expensive to make. The government mandates that it contain less butane and other cheap organic compounds because they contribute to the formation of ground-level ozone, a primary constituent in smog. That means more oil, a costlier component, is needed to produce each gallon.
The Oil Price Information Service predicts that gasoline could peak at $4 online payday loan lenders.25 a gallon by the end of April. That would top the record of $4.11 in July 2008.
The national average for gasoline began the year at $3.28 a gallon. The average price for February so far is $3.49 a gallon. That’s up from $3.17 a gallon last February, a record at the time. Back in 2007, before the recession hit, the average for February was $2.25 a gallon.
Prices are higher on the East and West Coasts, where gasoline has risen above $3.70 in Connecticut, New York, Washington D.C. and California. This isn’t unusual _ states on the coasts charge some of the nation’s highest gas taxes.
High gas prices put a strain on many people’s budgets.
Americans spent 8.4 percent of their household income on gasoline last year when gas averaged an all-time high of $3.51 a gallon. That’s double the percentage a decade ago. They could pay even more this year, even though demand is the lowest in 11 years as people drive fewer miles in more efficient cars, says Tom Kloza, chief oil analyst at OPIS.
Gary Goodman commutes into Manhattan from Edgewater, N.J., because gas, tolls and parking make the cost of driving prohibitive.
Goodman, an accountant, commutes by bus. He uses his car mostly for trips to the grocery store or for occasional nights out. He says he has no choice but to eat the higher gas costs.
“I already drive as little as possible,” he says.
Paul Dales, a senior economist at Capital Economics says it would take a bigger shift in the global economy _ say, a deep recession in Europe or a slowdown in Asia’s manufacturing _ for pump prices to drop noticeably. Either event would slow oil demand, depressing prices.
But experts expect demand to keep rising. World oil demand is expected to increase by another 1.5 percent to 89.25 million barrels a day in 2012, according to the Energy Information Administration.
In the short term, tensions with Iran are feeding fears that oil supplies could be blocked.
The U.S. and Europe are tightening economic sanctions against Iran over what the West believes is Iran’s attempt to build a nuclear bomb. World leaders fear Israel may be planning a strike against Iran, the world’s third largest oil exporter.
In response, Iran has threatened to withhold its own oil deliveries and to block the Strait of Hormuz, a waterway along its coastline through which one-fifth of the world’s oil flows.
On Friday, an international banking clearinghouse crucial to Iran’s oil sales said it is prepared to discontinue services to Iranian financial institutions being targeted by the EU and U.S. sanctions. That could ratchet up the pressure on Iran, but also send oil prices soaring.
The price of Brent crude fell 53 cents on Friday to $119.58. WTI gained 93 cents to $103.24.
___
Reporter Beth Fouhy in Atlanta contributed to this report.
Powered by WordPress -- XHTML 1.0