Investors fear that Jamie Dimon and JPMorgan may suffer the same fate as Lloyd Blankfeinand Goldman Sachsfollowing the former CEO’s testimony before the Senate: a soiled reputation and an underperforming stock.
In April 2010, following a marathon grilling in front of the Senate’s Permanent Subcommittee on Investigations, shares of Blankfein’s Goldman Sachs have underperformed the market and the rest of the financial industry.
Part of the reason is the curtailment of trading activities by the bank to avoid further scrutiny (and another trip before Congress) and loss of banking business because of the reputational hit that the hearing caused.
“The key similarity between Goldman and JPMorgan is that the increased scrutiny reduces both firms' earnings power by restricting their future revenues from proprietary trading,” said Enis Taner, global macro editor at RiskReversal.com. “That impact is especially significant in a 1.6% 10-year bond yield environment, as risk-free return opportunities are very limited.”
In other words, Dimon’s performance does not matter. Thursday’s papers will still have a picture of the CEO sitting at the Michael Corleone table in the Senate chamber, just as they did on April 28, 2010 the morning after Blankfein’s testimony. And since that time Goldman Sachs shares have lost more than a third of the value.
The circumstances that brought both executives before Congress are different.
Blankfein’s sworn testimony came after a year-long Senate probe investigating the bank’s bets against the housing crisis and whether or not those conflicted with its duties to the firm’s clients. Dimon arrived here after the bank voluntarily disclosed a ballooning trading loss that it claims was a hedge gone awry.
“The differences between Lloyd Blankfein's testimony and Jamie Dimon's are profound,” said Scott Nations of NationsShares. “Call that Wall Street's comeuppance, call it deserved. I choose to call it the undeniable difference that makes Dimon, along with his pristine reputation, Teflon.”
Still with financial reform, including the so-called Volker ruleon proprietary trading, hanging out there waiting to be clearly defined and then implemented, this trading loss couldn’t have come at a worse time for the bank or industry, investors fear.
“It is not about the loss,” said Guy Adami of StockMonster.com. “It is all about the decision to take a $100B bet in the first place. It speaks to the banks getting away from what should be their core business of lending, etc.”
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