Jamie Dimon May Be in Danger

The following article is brought to you by Jonathan Berr at InvestorPlace.Com.

JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon’s reputation was so sterling before the recent unexpected trading loss that last year, Vanity Fair described him as “nice-looking” with a “head of fluffy white, unbankerish hair,” whatever that means. The son of Greek immigrants won kudos for his blunt testimony about the scandal before Congress and has vowed that the New York-based financial services firm will do better. He even counts Warren Buffett, history’s greatest investor, and President Obama among his fans.

Unfortunately, the hot water keeps getting hotter.

The New York Times on Thursday reported that the losses generated by the so-called London Whale may top $9 billion, more than four times what JPMorgan originally reported. Granted, these are complex financial instruments that aren’t easy to either value or unwind, but the difference between the two numbers is stark. Now, speculation is starting to emerge in the press about whether Dimon may lose the job he’s held since 2005 — a notion that in early May would have been unthinkable.

“Dimon has either failed to supervise, failed to tell the truth, or both. Pleading ignorance doesn’t help,”Tufts University business professor Amar Bhide told Fortune contributor Eleanor Bloxham, CEO of The Value Alliance.

Though Bhide’s harsh view appears to be in the minority, it does indicate that Dimon’s future is far less secure than it used to be. He’ll have a difficult time surviving if the trading losses continue to mount. Investors would wonder — rightly so — how Dimon couldn’t have known about the gigantic risks the bank was taking.

JPMorgan’s internal controls, particularly its risk-management practices, are getting increased scrutiny from regulators. If they’re found to be lacking, Dimon must be held accountable. And that’s another situation that could prove to be problematic.

Dimon, whose 2011 compensation topped $23 million, knows the most important asset that any banker has is his reputation. Once it’s tarnished, restoring it may take years. If the estimates of the trading losses continue to worsen, it will be hard for Dimon to survive. For now, however, investors appear willing to give him the benefit of the doubt.

Shares of JPMorgan are down more than 10% over the past year, outperforming Goldman Sachs (NYSE:GS), which is down more than 27%, and Morgan Stanley (NYSE:MS), off more than 37%. Citigroup (NYSE:C) is also down some 36% during that time period. And an argument can certainly be made that buying JPM on its recent pullback is a smart long-term bet.

If JPMorgan does decide to part ways with Dimon, the executive would probably be entitled to a payout of about $15 million, according to the company’s latest proxy. Interestingly, JPMorgan executives don’t have employment agreements or benefits or awards triggered upon termination of employment or a change in company ownership, which means his award probably would be much less than it would be at other companies.

Though Dimon is considered one of the best execs who has ever worked on Wall Street, he isn’t irreplaceable. His fate is not entirely in JPMorgan’s hands. The government doesn’t want banks to be too big to fail, and it doesn’t want the bankers who run them to think they can escape consequences for the actions taken in their name.

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