BIA Between the Lines: Risk? Forget About It: Jamie Dimon,
Chairman & CEO, JPMorgan Chase & Co.
JPM’s European exposure is likely riskier than Mr. Dimon
would like investors to believe.
Mr. Dimon is asked several questions about JPM’s exposure to
Europe. While he provides and quantifies the company’s amount of exposure, his
responses consistently reflect efforts to downplay the level of risk associated
with that exposure, suggesting that the firm’s risk profile may be more
aggressive than he would like to admit.
Specifically, when Mr. Dimon is asked what JPM’s exposure is
to troubled nations, he answers it is about $15 billion net of collateral and
ultimately acknowledges that the company could lose $5 billion. But Mr. Dimon
is also quick to state that “we stress it,” “not because we’re taking a bet,”
but they are “trying to manage exposure” in order to minimize concern about the
level of risk associated with that exposure. This language, however, belies a
sense that the company is taking a “bet” that they are “trying” to manage,
suggesting that JPM may be taking on more risk than Mr. Dimon wants to admit. Further,
Mr. Dimon states that “I’m not going to feel terrible” should the worst happen.
This is likely a preemptive effort to downplay the severity of the financial
impact should some countries default, suggesting that Mr. Dimon has concerns
that losing money in Europe is more of a possibility than he would like
investors to believe.
Further, when asked if it is possible to be completely sure
that hedges with counterparties are truly effective, Mr. Dimon does not answer
the question. He instead minimizes concern by explaining that “a lot” of the
collateral is cash and that collateral that is not cash is not Italian or
Spanish sovereign debt. These qualifications, however, suggest that there may
be some portion of collateral backing these hedges may not be as effective as
Mr. Dimon would like investors to believe.
More significantly, however, Mr. DImon emphasizes that “we
know the exposure to every single counter party.” This statement is meant to
assure investors that JPM is aware of their level of risk, but falls short of
assuring that the level of risk is appropriate. Further, Mr. Dimon casually
acknowledges that “yeah something could go wrong” but not “terribly wrong” in
an effort to downplay the severity of both the level of risk, and the potential
impact of default associated with JPM’s European exposure. This suggests that
the potential for losses is more significant and tangible than he attempts to
portray.
JPM may be increasing their European exposure more
aggressively than implied.
When asked about the potential for buying assets and
businesses from troubled European banks, Mr. Dimon begins his response by
emphasizing, for the second time during the interview, that “First of all we
really want Europe to recover.” While this statement is meant to be supportive
of European banks, it also represents a potential “truth-in-the-lie” --
literally suggesting that JPM has a strong, specific interest in seeing the
crisis resolved. This takes on more significance when Mr. Dimon’s acknowledges
that JPM has purchased assets, but attempts to downplay the extent to which the
company has done so by qualifying that there are “certain” assets and
divisions, “some” that they have bought, “some” they have made bids on and did
not get and “some” they are still evaluating. This effort to minimize JPM’s
activity in seeking out and acquiring these assets raises questions about how
much additional European exposure JPM has taken on in recent months and about
the level of risk associated with that exposure..."
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