Also, merely removing a bank's securities business won't necessarily remove all the risks. Think of JPMorgan Chase, which turned up $6 billion in trading losses in a division it referred to as its chief investment office.
When Bloomberg News and The Wall Street Journal sounded the alarm about the CIO and Jamie Dimon called it a "tempest in a teapot," many veteran banking industry analysts believed him, since the CIO didn't appear to be part of the securities business. In other words, how do we know Wells Fargo doesn't have a CIO taking similar types of risks to those taken by JPMorgan?
"I am no longer willing to take any statements made by this company at face value," Bove wrote in his note yesterday. He was referring to the fact that Wells says it has great customer service when his experience told him otherwise. Still, given that misrepresentation, why should we trust Wells when it says, as it has done in the wake of the JPMorgan CIO debacle, that it doesn't take similar kinds of risks?
"We don't have any centrally-directed macro portfolio hedges," Wells chief risk officer Michael Loughlin told investors during a recent conference.If we really want to reduce risk from the banking system, we need regulators who have the sophistication, the guts and the resources to figure out whether Loughlin is telling the truth. That's a tall order, and probably an unrealistic one. What that means is that separating banks and securities dealers isn't good enough, since most regulators can't reliably tell the difference between the two. As a result, we need to make banks smaller--whatever business they say they're in. -- Written by Dan Freed in New York. Follow this writer on Twitter.
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