EthicsBite™

JPMorgan Chase

The world of banking gave us more drama this week in the form of Jamie Dimon’s usually well-managed JPMorgan Chase. While it is not certain that wrong doing occurred, even Dimon admits the $ 2 BILLION trading loss in their London hedge fund unit was “eggregious,” “a mistake” and “almost inexecusable.”  Perhaps the “almost” applies to himself, Jamie Dimon, as reports this morning are that the entire unit may be out the door along with the unit’s leader. Political as well as financial fallout is already running high with the SEC announcing an investigation, voices of regulation speaking out on a return to the Glass Steagall days and Elizabeth Warren, consumer advocate and candidate for the US Senate, demanding that Dimon resign from his position on the New York Fed.

Ethical Assessment: It is not clear that the law was broken. On the other hand, this was not the bank’s money the bank was gambling with, as discussed in a prior post. And the size and scale of the bank involved (“too big to fail”) has implications beyond shareholders and depositors. Standards of financial and fiduciary responsibility have, in my opinion, been compromised.

In addition, the fact that Dimon sits on the New York Fed is reminiscent of Goldman Sach’s influence just prior to our last meltdown. For me there is a potential conflict of interest in having the CEO of a “too big to fail” international bank so closely involved with the Fed.

On the positive side I give Jamie Dimon credit for releasing this news as soon as he knew of it, admitting that a huge mistake had been made and taking swift action in holding his personnel accountable. All too often these things are left to drag out, no one loses their job immediately or ever and PR machines are cranked up to spin the story. Not so with Mr. Dimon.

Chesapeake Energy

Earlier in the week it was revealed that only days before the announcement that CEO Aubrey McClendon had borrowed about $ 1.1 Billion against his personal interests in Chesapeake well properties, he was busily arranging another $ 450 Million of similar loans. Not only that, but he was arranging these loans from the same investment management firm that was also putting together a $1.25 Billion loan for the company.

At the end of the week, Chesapeake announced that it had arranged a $ 3 Billion loan for the company itself.

While the company’s loan appears to be related to refinancing opportunities we as yet have no explanation as to McClendon’s need for such large loans. The fact that he has a hedge fund makes one curious as to whether there is some big unraveling going on in that operation and he may be borrowing to keep that afloat. Also Chesapeake shares had dropped from around 34 last August to the 25 area before all this news broke. Perhaps he had his company ownership leveraged too high. Either way it looks like a day of reckoning is coming for Mr. McClendon. Stay tuned.

In Brief

Avon, who is considering a possible merger with Coty, Inc., announced they are cooperating with an SEC probe into “suspicious” trading centering around the merger news.

Former News of the World executive and arrestee Rebekah Brooks was testifying again, but downplayed her relationship with David Cameron, the Prime Minister.

And finally, Tyco surfaced one more time as former CFO and still imprisoned felon Mark Swartz is now suing the company, claiming they owe him $60 Million in retirement benefits and something to do with his taxes. Would those be the taxes on all the money he stole?