The embattled boss of JP Morgan, Jamie Dimon, faces shareholders at the bank's annual general meeting on Tuesday amid a backlash against its campaign to dilute plans for the tighter regulation of Wall Street.
Pension funds have called for the positions of chairman and chief executive, which are both held by Dimon, to be split, in the aftermath of a $2bn trading loss announced by the bank last week.
The White House called on Monday for the efforts of "Wall Street lobbyists" to be resisted. Congressman Barney Frank, co-author of the act that contains the proposed new rules against which Dimon has campaigned, told the Guardian that the JP Morgan fiasco "shows how wrong he is in arguing that the legislation is not needed".
JP Morgan confirmed on Monday that its chief investment officer, Ina Drew, a thirty-year veteran the bank and one of Wall Street's most senior women financiers, quit. Dimon had previously rejected several officers by Drew to resign.
Until now, criticism has rolled off Dimon. His closest rival, Goldman Sachs' Lloyd Blankfein, was bloodied by the credit crisis, and most of his fellow bank bosses lost their jobs. But the JP Morgan chairman and chief executive emerged as the survival king of Wall Street and its chief defender.
But thanks to the spectacular cock-up at JP's London office, the bank's shareholders have seen some $19bn wiped off the value of their investments, the result of by a gamble that only weeks ago Dimon memorably dismissed as a "tempest in a teapot". As shareholders gather in Tampa, Florida, for the AGM on Tuesday, Dimon faces the thorniest moment of his tenure.
As the man who steered JP Morgan through the credit crisis and secured its position as the biggest bank in the US, Dimon is more used to bouquets rather than brickbats from his shareholders. This year may be different: major pension funds and shareholder advisory firms were already calling for Dimon to step down as chairman.
After the loss was announced, the American Federation of State, County and Municipal Employees reiterated its view that the bank's top jobs need to be split to improve corporate oversight. "We need an independent chairman of the board. The stakes are too high to leave Jamie Dimon unsupervised," said Gerald McEntee, trustee of the AFSCME pension plan, in a statement. All eyes will be on the combative boss to see how he reacts.
Over the weekend Dimon offered an unusual mea culpa for the $2bn loss the bank made at its London office. The trades were "flawed, complex, poorly reviewed, poorly executed and poorly monitored," he said, in a remarkably candid choice of words.
Dimon is not usually so contrite. He said Paul Volcker, chairman of the Federal Reserve under two presidents, "by his own admission … doesn't understand capital markets". Volcker was the original proposer of a rule designed to prevent losses similar to those JP Morgan is now facing, against which Dimon has led a concerted, and largely successful, campaign.
The rule is a key component of the Dodd-Frank Act, legislation brought in after the credit crisis. Barney Frank, co-author of the act, said the fiasco shows how important the legislation is. "It shows how wrong he is in arguing that the legislation is not needed," Frank told the Guardian. "This isn't a stupid mistake at some poorly run company. It's not some outlier like Countrywide [the fallen subprime mortgage giant]. Dimon is a very able guy. But even in a well-run institution things like this can happen."
Frank said he was confident that the Dodd-Frank legislation would be implemented as originally drafted and that Wall Street's lobbying would ultimately prove futile, "There have been delays, but a year from now this will all be substantially in place."
Others are less sure. "The Volcker rule as originally proposed would have prevented something like this," said Akshat Tewary, an attorney and co-founder of Occupy SEC, part of the Occupy Wall Street movement. "But in its current form it wouldn't."
Tewary said it was not the magnitude of the loss, which the giant JP Morgan can easily absorb, but the way that it came about that should be a cause for concern. "This happened in a division that was supposed to be about managing risk, but this wasn't risk management at all," he said. "The real question now is – what is happening at other banks?"
Tewary said that many in Washington had originally dismissed Occupy SEC's concerns about Volcker's dilution. Now they listening, and it looks increasingly like that Frank will be proved right. Mitt Romney, the Republican presidential front runner, has threatened to repeal Dodd-Frank in its entirety. JP Morgan has handed Obama a golden opportunity to draw the battle lines.
The White House spokesman Jay Carney, briefing reporters on Air Force One as the president flew to New York for a series of engagements on Monday, addressed the attempts to water down the water down the proposed regulation. "It's so important that we resist the efforts of Republicans and Wall Street lobbyists," he said.
The lasting legacy of this scandal may be tighter regulation for Wall Street, but Dimon will probably see off calls to split his chairman and chief executive rules. JP Morgan is likely to remain Wall Street's biggest player even if the Volcker rule is passed.
Dimon's original interview for Meet the Press on Sunday was taped before the scale of the London problems became clear, and it was an anodyne affair about his views of the economy and the importance of Wall Street to the wider economy. A second interview had to be recorded to take in the news.
The bank boss seemed to suggest that there were early warnings. "First of all, there was one warning signal – if you look back from today, there were other red flags," he said.
As Dimon prepares for his Tampa appearance on Tuesday, a prime focus for regulators and shareholders considering law suits against the bank will be what Dimon knew and when he knew it.
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