Jamie Dimon Quickly Filets the London Whale's Costly Trades

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Jamie DimonAfter all the media, regulatory, and congressional commotion surrounding JPMorgan Chase's (JPM) $2 billion-plus loss on a massive derivatives bet made in its London office, it now looks like CEO Jamie Dimon's infamous "tempest in a teapot" comment may have been accurate after all.

Financial Times is reporting that JPMorgan has already exited 70% of the "London Whale" derivatives positions that had gotten the bank into such hot water.

Such a quick exit isn't what anyone had expected, including maybe Dimon himself, making a case for the superbank being far more nimble than its critics give it credit for.

The London Whale Surfaces

Press reports first surfaced in April that a JPMorgan trader based out of the bank's chief investment office in London had taken such massive positions in the derivatives market that they were "moving the market," causing hedge fund managers there to nickname the then-unknown trader "the London Whale."

Dimon initially wrote off the press reports as "a tempest in a teapot," but a month later he was making the press rounds himself, forthrightly acknowledging that the initial reports had been right and apologizing for what he termed an "egregious" mistake caused by "sloppiness and bad judgment."

Since Dimon broke his own story, hardly a day has passed without him or the bank being somewhere in the news.

On the regulatory side, three separate federal agencies jumped almost immediately into the fray, including the Federal Bureau of Investigation. And Dimon has now testified twice before Congress on the matter.

Those baying for further regulation of the banks have used this incident as an opportunity to bay for more. Never mind that there's a raft of post-crisis U.S. legislation already coming into effect. Or that the global Basel III banking rules are also making their presence felt domestically. Or that there's a bill currently making the rounds in Congress calling for the outright breakup of JPMorgan, along with five of America's other biggest banks.

Critics say that Dimon should have seen this coming. And that if he didn't, then maybe JPMorgan and similarly sized banks are not only "too big to fail" but also too big to manage.


While They're Zigging, We'll Be Zagging

But at the very least, the speed at which the bank has turned this nagging London situation around is breathtaking.

One of the first things Dimon himself said regarding JPMorgan's positions there was that the bank was going to take its time unwinding them. Dimon himself hinted that JPMorgan might take the rest of the year to do so.

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Everyone in the industry assumed that by moving too quickly, the bank could only exacerbate its losses. But the derivatives index JPMorgan had made its outsize bets on is now reporting that $31 billion was traded on it this past Tuesday -- a record. There were also 238 trades that day, versus a normal daily average of less than 50.

So when Dimon said his bank would be moving slowly and taking its time to sort everything out, it's very possible he was just being sly and trying to throw his rivals off. It looks like Tuesday was his big move to get his bank out of trouble.

Of all the Wall Street CEOs, Dimon has argued the most vociferously against the surging post-crisis banking regulation, and Congress has generally given him the berth to do so. JPMorgan came out of the financial crisis smelling the best by far of all the big hybrid banks, and Dimon has consequently enjoyed the reputation of being a top-notch risk manager who can stay on top of a bank even as big as JPMorgan Chase.

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Jamie Dimon Quickly Filets the London Whale's Costly Trades

With 10,000 lawsuits against them, you knew they'd be on the list somewhere. JPMorgan estimates it faces up to $3.315 billion in litigation after taxes, beyond what it has already paid out or reserved against. That adds up to 8.8% of the $37.612 billion JPMorgan is expected to earn in 2012-2013.

In 2011, JPMorgan's noninterest expense included $3.2 billion of litigation expense, mostly for mortgage-related matters, compared with $5.7 billion of litigation expense in 2010, according to Nomura's report

Citigroup estimates it is on the hook for up to $2.6 billion in litigation after taxes, beyond what it has already paid out or reserved against. That adds up to 9.9% of the $26.364 billion Citigroup is expected to earn in 2012-2013.

Citigroup faces a variety of regulatory inquiries and class action lawsuits related to its mortgage origination practices. The private lawsuits will not be included in a National Mortgage Settlement, reached last month with 49 state attorneys general and the federal government. Bank of America (BAC), JPMorgan, Wells Fargo (WFC) and Ally Financial, the former GMAC, were also part of the settlement.

Bank of America estimates it faces up to $2.34 billion in litigation expenses after taxes, beyond what it has already paid out or reserved against. That would equate to 10.9% of the $21.455 billion the bank is expected to earn in 2012-2013. The bank faces lawsuits related to mortgage originations and servicing, as well as for alleged failure to disclose its knowledge of ballooning losses at Merrill Lynch ahead of its eventual acquisition of that company.

The $2.34 billion figure, however applies only to "those matters where an estimate is possible," according to the bank's annual 10-K filing with the Securities and Exchange Commission.

Regions Financial estimates it faces up to $221 million in additional litigation costs after taxes, or 12.9% of estimated $1.707 billion in 2012-2013 earnings.

Regions is also on the hook for any litigation related to its Morgan Keegan brokerage unit, which it agreed to sell to Raymond James Financial (RJF) on Jan. 11.

Synovus faces just $39 million in potential litigation costs after taxes, above what it has written down or reserved against. However, that equates to 14.5% of the bank's estimated $270 million in 2012-2013 earnings.

As is the case with Bank of America, however, Synovus's estimates relate only to "those legal matters where [the company] is able to estimate a range of reasonably possible losses," according to its 10-K.

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We have yet to find out exactly what sort of losses, if any, the bank may have incurred with this big exit. And the bank isn't 100% extricated yet.

But while the London Whale incident has certainly tarnished Dimon's shiny image, the speed with which he and his team have seemingly safely turned things around makes the case that even a leviathan like JPMorgan Chase can move quickly enough, craftily enough, and competitively enough when in skilled hands.

John Grgurich is a regular contributor to The Motley Fool, and holds no positions in JPMorgan Chase. The Motley Fool owns shares of JPMorgan Chase.

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