JPMorgan Chase’s biggest worry in the wake of the “London Whale” $2 billion trading loss should be losing the trust of Congress, analyst Jim Bianco of Bianco Research told CNBC Tuesday.
His comments came as JPMorgan Chief Executive Jamie Dimon prepares to testify to the Senate later this year.
“JPMorgan is too big to fail and any problem they have becomes an issue for Congress. If these losses grow, and it’s not communicated properly to the market, they may have the balance sheet to withstand it but Congress may not have the fortitude to sit by and trust them,” Bianco warned on CNBC’s “Squawk Box Europe.”
The sheer size of the investment bank, boosted by buying Bear Stearns in 2008 after its collapse — a purchase backed by the U.S. Federal Reserve — has made it easier for it to become the largest player in various markets. This could then make it easier for other banks to bet against its hedges.
“To date, no one has accused anyone of illegal trading. It appears that everything they did was on the up and up until the losses started to pile in. What they were attempting to do appears to be hedging,” Bianco said.
Anthony Fry, chairman of Espirito Santo Investment Bank UK, said that issues such as the JPMorgan loss are the “corollary of creating these larger entities” in the wake of the credit crisis.
“There’s a lot of coverage around the risks taken by banks. Sometimes the very process of hedging can put you in a worse place than you would have been if you hadn’t hedged,” he added.
JPMorgan announced on Tuesday that it has suspended a share buyback program — although the bank insisted that this was not linked to the loss.
“It’s hard to accept that, because it was only instituted two months ago and now they’re cutting it back the week after the losses. Remember we don’t know what the final figure for losses is going to be. This final story has not been written yet,” Bianco warned.