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JPMorgan's 'London Whale' Behind Major Losses

AUDIE CORNISH, HOST:

Joining us now is Stephanie Ruhle. She's a correspondent with Bloomberg TV's "Inside Track." She's been covering this story since it first started to develop, back in early April. Welcome, Stephanie.

STEPHANIE RUHLE: Thank you for having me. We have been working on this story for over a month now. And you know, it was a big surprise to us last night when JPMorgan's Jamie Dimon did come out with a very big mea culpa; you know, saying, I'm sorry; we do have egg on our face.

When - you know, when we reached out to them five, six weeks ago as this story was developing, they were very clear that this was merely a hedging strategy - which really just means they're offsetting risks. Where they're extending loans, they implement a strategy where they're offsetting that risk. And a bank as big as JPMorgan is extending a massive amount of loans. And they were very clear a month ago, saying this is just a hedging strategy, nothing more; and all the noise being created is simply a tempest in a teapot.

Well, fast forward five weeks, and that does not seem to be the case. And the $2 billion loss could potentially be just the beginning. And obviously, those of us inside the business, inside the markets are very focused, but we're actually getting quite a bit of focus from those outside.

CORNISH: Now, Stephanie, I want to stop you for a second because we need to understand the anatomy of what's happened. Tell us about the man known as the London Whale, who was at the heart of these trades.

RUHLE: Bruno Iksil. So Bruno Iksil sits in a part of the bank known as the chief investment office. And as JPMorgan will tell you, what this area does - they take excess capital that the firm brings in from deposits, and they reinvest it for a return. One would think...

CORNISH: And normally, it's supposed to sort of protect the bank. It's not supposed to be a place where they sort of play around with money for short-term profit.

RUHLE: And especially in highly structured areas. So just to put it in a little bit more context, you know, as we worked on this story, I was speaking to someone in a restaurant - not in the business - and I simply said, you know, what do you think of JPMorgan and American banks? You know, he said to me, you know, after 2008, I don't feel good about any bank, but JPMorgan is the biggest. You know, he said, JPMorgan is the best. Jamie Dimon, he is the American bank CEO you trust, you rely on. He's a straight-talking guy.

And I asked this gentleman, I said, well, what would you say if I said, well, what if JPMorgan is taking that excess capital and investing it for a return, not necessarily for treasuries? You know, if you invest in treasuries, you're getting almost nothing, so they are searching for a yield of your product. And he said to me, well, that would make some sense.

And I said, well, what if the product they were investing in was highly structured, was in the credit derivative space, the space that Warren Buffett himself has called a weapon of mass destruction? And this gentleman said to me, absolutely not. Following 2008, following what Americans had to go through with banks, we wouldn't see that movie all over again. And, you know, apparently, that does seem to be the case.

CORNISH: So Stephanie, we've talked about what a colossal mistake this is, $2 billion and counting. But put it in perspective, you know, to JPMorgan Chase's profits. Is this just undermining their confidence - in just this company? What's the thing to look for here?

RUHLE: Well, that's really an excellent point because if you think about JPMorgan and the massive size of the firm, you would think $2 billion? It really is a drop in a bucket. But that's what's interesting about Mr. Dimon coming out to speak. Now, one would think a man of his stature would not want to make a public statement, a mea culpa, over $2 billion. A firm of that size, they could figure out a way to work that through the system, which is leading many of us to believe $2 billion could be just the beginning.

And Dimon himself said it could be a rocky road ahead, and there could be more losses than this. And much like the credit crisis of 2008, these type of credit products can get very illiquid, very quickly. And when that happens, people in the business say you're hedged and wedged - you might not be able to get out. So that 2 billion could turn into 3, 4 or 5 very quickly, and we need to keep an eye on it.

CORNISH: That's Stephanie Ruhle. She's a correspondent with Bloomberg TV's "Inside Track." Stephanie, thanks for explaining it to us.

RUHLE: Thank you. Happy Mother's Day. Transcript provided by NPR, Copyright NPR.