Don't cry for J.P. Morgan's profits
J.P. Morgan's fearless leader isn't a big fan of derivatives reform:
Revenue lost by dealers could be significant. Research and advisory firm TABB Group estimates the top 20 dealers generate around $40 billion annually from privately-traded derivatives, excluding credit default swaps.
Jamie Dimon, chief executive of JPMorgan Chase & Co , told bank analysts earlier this month that forcing dealers to trade derivatives on exchanges could cost his firm up to a couple of billion dollars in revenue annually.
"You’ll note that what’s missing from Dimon’s argument is any kind of compelling reason we should care about this," comments Matt Yglesias. "What he’s saying is that this measure to enhance the stability of the system will take a firm with $11.73 billion in 2009 profits and turn it into a firm whose profits might be as low as $9 billion."
I'd actually take this a step further: We should actively want that to happen. What Dimon is saying is that the complexity and opacity of the current derivatives market lets his firm skim billions of dollars in revenue from other business. Some of those business are hedge funds and professional investors and if they want to hand money over to J.P. Morgan, more power to them. But some of them are actual corporations that make actual things and are trying to hedge legitimate risks. It would be a good thing if the market weren't structured such that J.P. Morgan could take them to the cleaners.
Investment banks don't invent money (well, sometimes thy do, but you know what I mean). If a bank can't charge such high fees anymore, than that money doesn't go away. It stays with the people who were getting charged the high fees. That could be good or it could be bad, but if Dimon think it's bad, he should explain why.
April 23, 2010; 12:20 PM ET
Categories: Financial Regulation
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