How JPMorgan’s loss may affect European banks

Stephen Beard May 11, 2012

Stacey Vanek Smith: JP Morgan Chase CEO Jamie Dimon announced the bank lost at least $2 billion on a complicated hedging strategy. Our own Stephen Beard joins us live from London to discuss. Good morning, Stephen.

Stephen Beard: Hello Stacey.

Vanek Smith: Stephen, I understand JPMorgan is now in talks with U.K. regulators about this loss. What’s the view on this in London?

Beard: Well there’s real concern here because this has happened to a bank noted for its caution, but there’s not too much surprise. It’s reported that the losses stem largely from a London trader nicknamed the “London Whale.” He’s been making waves for some time, this guy. In fact, we spoke about him on this show a month ago. Now it seems the whale has been well and truly beached.

Vanek Smith: So this is bad for JPMorgan, but is it going to effect the way European banks do business?

Beard: Well it could. Unlike the U.S., the Europeans have so far shied away from the Volcker Rule. They were not planning to follow the U.S. example and stop banks making big bets with their own money. After this, European regulators may think again about panning this kind of activity — which as we’ve seen can lose a lot of money, also make big profits too. Ralph Silva of SRN consulting says a ban could hit European bank profits.

Ralph Silva: The very largest of banks that generate so much money on managing their own money will probably not have that option in the upcoming years. And that’s a great concern — especially for European banks.

Especially now as European banks look ever more fragile with the eurozone debt crisis bank in the headlines. European banks need a lot more capital. But will investors put that capital in when bank profits could decline as a result, perhaps, of much tighter regulation.

Vanek Smith: Stephen Beard in London. Thank you, Stephen.

Beard: OK Stacey.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.