Dimon Sees Problems With Derivatives Rule

Discussion in 'Wall St. News' started by S2007S, Oct 14, 2009.

  1. S2007S



    Seems they are finally trying to regulate this area which should have been regulated at day one, however Dimon now worries that its going to have "MATERIAL IMPACT" on the bank's future earnings....


    Dimon Sees Problems With Derivatives Rule
    October 14, 2009 , 5:47 pm

    Jamie Dimon, JPMorgan Chase’s chief executive, warned Wednesday that if the government required all over-the-counter derivatives to be cleared on an exchange, as the Obama administration has proposed, this would have a “material impact” on the bank’s future earnings.

    The question about how to police derivatives is one of the “two main regulatory issues” that the bank is facing, along with the White House’s push to create a consumer protection agency, Mr. Dimon said on a conference call with analysts and investors. But while the creation of the consumer protection agency looks to be set, Mr. Dimon said there were still questions as to how Congress would legislate derivatives.

    “We don’t know how it is going to turn out yet,” Mr. Dimon said. “It’s kind of flip-flopping all over the place.”

    Regulators from the Commodity Futures Trading Commission and the Securities and Exchange Commission urged lawmakers earlier this month to approve recommendations by the Obama administration to force all O.T.C. derivative trades to be cleared on an exchange and in public view.

    Currently, O.T.C. derivative trades are cleared and executed privately between traders and brokers, and regulators believe this practice allowed systemic risk to build up undetected during the financial crisis. It is also a lucrative business for dealers like JPMorgan, and the Federal Reserve says it produced $35 billion in revenue to the top Wall Street banks in the first half of 2009.

    “There should be room for over-the-counter — you always read about they don’t have capital, they’re not regulated, and all of that is just untrue,” Mr. Dimon said.

    “Over-the-counter derivatives, if you were doing it through a broker-dealer which is regulated by the O.C.C. and Fed, have capital requirements and credit reporting requirements, and we think it is important that that business be allowed to exist to service customers properly,” he said. The O.C.C. is the Office of the Comptroller of the Currency.

    Lawmakers opposed to further government regulation in the financial markets have made headways in their push to keep O.T.C. derivative trades out of public view. Earlier this month, Representative Barney Frank, the Massachusetts Democrat and chairman of the powerful House Financial Services committee, released a revised derivatives bill, which, unlike the original version, no longer called for O.T.C. derivative trades to go through an exchange.

    The move comes as Wall Street has stepped up its lobbying effort in Washington to protect lucrative parts of their business, including O.T.C. derivatives trading. Other parts of the financial services overhaul bill including moves to ban certain types of abusive short-selling, which were once believed to be done deals, are now in doubt amid the lobbying push.