JPMorgan: Fire Jamie Dimon!

The following article is brought to you by The Street at Forbes.Com.

Say what you want about Jamie Dimon, it can’t be denied that he is one lucky dude. He is a survivor. If Jamie Dimon had been on the Titanic, he’d have jumped in a lifeboat, like J. Bruce Ismay, and then issued a press release describing his heroism.

It’s really remarkable that JPMorgan Chase’s (JPM) CEO is still JPMorgan Chase’s CEO, and hasn’t retired to a farm in Ireland like Ismay. He hasn’t even stepped down as chairman of the Morgan board of directors or even as a “Class A director” of the Federal Reserve Bank of New York . He’s unsinkable!

But honestly, can you blame him? After all, it’s not as if there’s been much reaction to this latest JPMorgan horror story.

Just to recap for anyone who has been in a cave for the past few days: On Friday, Morgan announced that its credit derivatives trading loss had expanded to $5.8 billion, and that it will have to restate its first-quarter earnings because its traders may not have accurately valued the positions in its derivatives portfolios.

Instead of gasps of horror there have been yawns. It’s plain that the media and the public are a little tired of Wall Street scandals. For days, the drumbeat of daily headlines from the Barclays Libor-fixing scandal has dominated the financial news. Morgan could hardly compete.

It didn’t help that the Morgan news came out just before a summer weekend, traditionally the best day for companies to dump their bad news. Dimon couldn’t have asked for better timing.

But putting all that aside, the fact remains: Dimon has to go. Morgan’s board of directors and the Fed have to force him out, if he doesn’t have the good grace to step down. When it comes to genuflecting toward the silver-haired symbol of Wall Street excess, those two entities have been almost as shameless as the Senate Banking Committee. The Fed and the board have to man up and kick him out.

Now, I suppose one can ask: What business is it of mine that Jamie Dimon is CEO of JPMorgan or chairman of its board? After all, I’m not a JPMorgan shareholder. I’m not even a customer (as far as I know). Usually the fate of corporate executives is the exclusive province of the shareholders and their elected representatives on the board of directors. If the rest of us don’t like the way Morgan is run, we can just lump it. It’s none of our business.

That’s the usual argument but it ignores how the world works nowadays. To begin with, as I pointed out last week, Morgan is a key beneficiary of federal largesse. Even if it wasn’t on the dole, everything that Morgan does impacts on the rest of the financial system, and thus affects the rest of us — the nonshareholder members of the public — very deeply.

We have a stake in what goes on at Morgan, because our financial fate — our pension funds, our measly stock holdings — are affected by his people not making another big mess that threatens to tear down the financial system.

But let’s concede for a moment that Morgan’s executive suite is none of my business. What about the Morgan board of directors? Isn’t it any of their business? Haven’t they paid any attention to what’s going on? Are they in denial or just incompetent?

As veteran bank risk manager Michael Crimmins pointed out in the Naked Capitalism blog the other day, “For a company of JP Morgan’s stature to be compelled to restate prior period financials is a very clear signal of bigger problems with their overall financial reporting.”

Yet its significance was largely overlooked by analysts and the media. As Crimmins points out, the restated results added another $660 million to the first quarter loss, bringing it to $1.4 billion.

Even more important, he notes, is the reason for the restatement. Morgan disclosed that it relied on its traders, and not an objective third party, to provide accurate valuations. “That’s like putting the foxes in charge of not just the henhouse, but the entire farm,” Crimmins points out. He notes that every firm where he’s worked “has an independent valuation unit that resides outside the business unit. In JP Morgan’s case it seems that unit reported to the business, which is a serious deviation from good practice.”

Meanwhile, staring down on all this is that see-no-evil, never-enforced God of regulation known as Sarbanes-Oxley. It requires that CEOs and CFOs certify that their financial statements are true and correct, and that there are no material misstatements.

If a CEO certifies that his financial statements are kosher, when he knows that his bank is not following best practices in valuing its massive derivatives portfolios, isn’t that a violation of SOX? And if the CEO isn’t aware that his bank isn’t following best practices, isn’t that a firing offense?

Crimmins believes that “this looks like a slam dunk case of a false Sarbanes Oxley certification,” possibly of a magnitude that could trigger the SOX provision for a “clawback” from the bonuses of the traders and execs who are responsible –including Dimon.

Yet somehow that doesn’t seem to be enough. Dimon is as rich as Croesus. He can stand to lose a few million bucks.

He needs to be fired, not fined. Every day that he stays on his job is still more proof that the system just doesn’t work.

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