CEO Gaffe of the Week: JPMorgan Chase

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

This year I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week, I'm highlighting the CEO of JPMorgan Chase (NYSE: JPM  ) , Jamie Dimon.

The dunce cap
Is it me, or does it feel like we're just running the gauntlet with financial foul-ups this year?

Goldman Sachs (NYSE: GS  ) started us off in March when one of its former executives abruptly resigned and wrote an op-ed column in the New York Times to express his disdain at what he saw as the recent bifurcation between Goldman's ethos and its actions. Citigroup's (NYSE: C  ) CEO, Vikram Pandit, was next in attempting to boost his pay package from $1 to $15 million even as the company faced billions in mortgage-related settlements. Thankfully, shareholders would have none of it and shot down Pandit's compensation package. Finally, Bank of America's (NYSE: BAC  ) CEO, Brian Moynihan, had his compensation boosted sixfold while his company faced similar settlement charges and produced an annual profit of just $0.01 per share!

So you see, it was just a matter of time until JPMorgan fouled up.

Late last week, JPMorgan disclosed that two traders in its London derivatives unit had made such poor trading decisions that the bank had lost $2 billion in just a matter of six weeks. On top of that, to minimize its losses on these credit derivatives, JPMorgan could lose an additional $1 billion as it tries to exit these trades at unfavorable prices. The trade was actually meant to reduce JPMorgan's risk and offset some of the riskier trades the company had made with its own money -- but it actually had the opposite effect.

Thumbs up, guys!

To the corner, Mr. Dimon
But wait -- there's more!

You somehow knew this was going to get better, and it did as soon as people began opening up their mouths about this errant lack of judgment.

First up was Rep. Barney Frank (D-Mass.), who noted that while JPMorgan Chase had complained virulently about the costs of financial regulation, it had lost five times the amount of the cost of that regulation in just six weeks. I rarely agree with Rep. Frank's ideas, but he hit the nail on the head with his analysis here.

Then came comments from JPMorgan itself that Chief Investment Officer Ina Drew, who had overseen these trades and reports directly to Dimon, was retiring after a 30-year career with the company. While I don't have much to say beyond wagging my finger in disdain after overseeing such poor trades, I do have to laugh about the company's possible replacement, Matt Zames.

Zames has been mentioned as a possible successor to Dimon but seems like an ominous fit for the CIO role? Why? Because Zames was one of the speculative mortgage-backed security traders for former hedge fund Long-Term Capital Management, which almost singlehandedly wiped out the U.S. financial market in 1998. The collapse of the Russian bond market in 1998 caused LTCM to lose $4.6 billion in just four months! Then again, maybe he's a natural fit to fill a position that lost $2 billion in just six weeks?

It's still unclear exactly how much Dimon knew about these trades, but the chain of command seems to be very simple: Drew reported to Dimon on a fairly consistent basis, and Drew was "in-the-know" when it comes to these derivatives trades. While even $3 billion worth of losses won't cripple JPMorgan's balance sheet, it's not a drop in the bucket, either. If anything, it provides the spark that may force Congress' hand in enacting sectorwide reforms that govern the way that financial institutions make use of leverage and even invest their own money.

Some call this a cause for reform; I call it Darwinism in action.

Do you have a CEO you'd like to nominate for this dubious weekly gaffe honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your nominee in the spotlight.

And if you'd like a surefire way to avoid investing in companies with questionable leadership practices, I invite you to download a copy of our latest special report, "Secure Your Future With 9 Rock-Solid Dividend Stocks." This report contains a wide array of companies and sectors that are likely to keep your best interests in mind, regardless of whether the market is up or down. Best of all, it's completely free for a limited time, so don't miss out!

Fool contributor Sean Williams owns shares of Bank of America but has no material interest in any other companies mentioned in this article. He is merciless when it comes to poking fun at dubious CEO antics. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of JPMorgan Chase, Citigroup, and Bank of America. Motley Fool newsletter services have recommended buying shares of Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that never wears a dunce cap.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1890100, ~/Articles/ArticleHandler.aspx, 5/28/2016 8:16:54 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 23 hours ago Sponsored by:
DOW 17,873.22 44.93 0.25%
S&P 500 2,099.06 8.96 0.43%
NASD 4,933.51 31.74 0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/27/2016 4:00 PM
JPM $65.43 Up +0.40 +0.62%
JPMorgan Chase & C… CAPS Rating: ****
BAC $14.88 Up +0.18 +1.22%
Bank of America CAPS Rating: ****
C $46.58 Up +0.47 +1.02%
Citigroup Inc CAPS Rating: ***
GS $159.53 Up +0.96 +0.61%
Goldman Sachs CAPS Rating: ****