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Did Mark Carney get last laugh in reform dust-up with Jamie Dimon? Add to ...

These are stories Report on Business is following Friday, May 11, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Behind JPMorgan's hit The massive hit to JPMorgan Chase & Co. sent a chill through financial markets today, but the bigger impact will be on the debate over bank regulation in the post-crisis era.

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The $2-billion (U.S.) trading loss - and it's likely to grow - hands powerful ammunition to the pro forces in what has become an increasingly heated debate.

Indeed, they wasted little time in speaking out after the Wall Street giant's shocking announcement when the markets closed yesterday.

"The enormous loss JPMorgan announced today is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too-big-to-fail’ banks have no business making," said U.S. Senator Carl Levin, one of the key players behind what is known as the Volcker rule, a centrepiece in the debate.

JPMorgan chief executive officer Jamie Dimon gave a nod to this, saying he stands by his opposition to the Volcker rule, but understands how the forces behind it will benefit from the new troubles at his bank.

"Obviously it puts egg on our face, and we deserve any criticism we get," Mr. Dimon, whose bank is deemed to be well managed, said on a conference call. "So feel free to give it to us, and we’ll probably agree with you."

As Grant Robertson writes in today's Report on Business, Mr. Dimon last night disclosed $2-billion in losses, over just six weeks, from a failed hedging strategy. The bank could see $1-billion more in losses in the second quarter, he said.

"It couldn't have come at a worse time for Volcker rule opponents, but U.S. bank risk is back following a major money centre bank's disclosure of $2-billion in trading losses," said Derek Holt and Dov Zigler of Scotia Capital," referring also to bank regulatory reform under what are known as new Basel rules.

"It’s not the one-time loss that is the biggest concern here," he said. "Markets should have had cause to believe that a lesson had been learned in the crisis, but this has markets dumping bank stocks ... on renewed concerns of improper oversight provided by both internal checks and balances and regulators. It couldn't have come at a worse time for opponents of the Volcker rule, especially since the bank was among the more vocal opponents of tighter capital rules in a country that is still wrangling with Basel II, let alone Basel III."

What no doubt galls Mr. Dimon, as well, is how he looks after his famous dust-up with Mark Carney, the governor of the Bank of Canada and the chief of the global Financial Stability Board.

In a private meeting in Washington last fall, Mr. Dimon let loose against Mr. Carney, warning that the global push for bank reform discriminates against big American banks such as his.

The fiasco at JPMorgan promises to have lasting effects where bank reform is concerned, though is manageable for the bank on the financial side of things.

"Others can comment on what this really means but the market cap of JPMorgan is $155-billion, and the investment banking arm had revenues of $26-billion in 2011, while the overall bank's revenues were close to $100-billion," said Kit Juckes, chief of foreign exchange at Société Générale.

"All the numbers are huge - the losses and the earnings. There will be lots of headlines and this is fuel both for a market which is looking for reasons to be risk averse, and for advocates of limits on banks' risk-taking. But it would be wrong to overstate the macro significance."

Carney's version The Globe and Mail's Kevin Carmichael has a great take today on Mr. Carney's op-ed piece in the Financial Times: The Bank of Canada governor is boasting that his monetary policy framework is better than yours.

“In an unpredictable world, policy makers need a robust framework, one that remains appropriate no matter the circumstances,” Mr. Carney writes. “Flexible inflation targeting is that framework, a policy for all seasons.”

Comments like that make it sound like the debate over the optimal policy regime is settled. For years, the central bank has spent much time and effort assessing the merits of targeting a certain increase in the price level over time, rather than the actual rate of inflation.

Yet when the time came to renew the Bank of Canada’s mandate last fall, the Canadian government opted against trying something new. Mr. Carney’s comments give reason to doubt that price-level targeting ever will be tried. Canada’s economic leaders appear to believe they have found the monetary policy equivalent of nirvana.

Another strong month for jobs Canada's labour market has chalked up a second straight month of hefty gains.

Some 58,000 jobs were created in April, Statistics Canada said today, though the unemployment rate inched up to 7.3 per cent as more people went searching for employment, and thus were counted in the work force.

The job gains are good news not only because they continue on from March's increase, but also because the two-month trend follows months of weakness, The Globe and Mail's Tavia Grant reports.

As well, virtually all of the jobs created in April were full-time positions, as in the private sector, at that, as governments held back amid belt-tightening.

"Canadian employment may be back to its old tricks again of posting massive first-half job gains, and then flattening out in the second half of the year," said deputy chief economist Douglas Porter of BMO Nesbitt Burns.

"In any event, the hefty back-to-back increases will silence concerns that the economy was sagging notably. Most impressive are the meaty job gains in the private sector, neatly offsetting the job losses in the public sector last month - hopefully that can continue through the rest of the year."

While the improvement is certainly welcome, the jobless rate remains high, and is expected to be stuck there for some time yet.

And the outlook remains bleak for the country's young people, whose jobless rate stubborly remains at about 14 per cent, where it has been since July 2009.

"The solid gain, on the back of a huge March rise, will lean the market back towards expecting rate hikes by the Bank of Canada, and suggests that Q2 economic growth may well make up for the softness we saw in Q1," said chief economist Avery Shenfeld of CIBC World Markets.

Ackman wins CPPIB support The investor who's in a pitched battle with Canadian Pacific Railway Ltd. won the backing of another powerful force today.

The Canada Pension Plan Investment Board threw its support behind Bill Ackman's Pershing Square Capital Management, who is winning recruits left, right and centre in the run-up to a vote May 17, The Globe and Mail's Jacquie McNish and Brent Jang report.

Mr. Ackman is proposing a dissident slate for CP's board, and is pushing to replace chief executive officer Fred Green.

TMX profit slips TMX Group Inc. , the Canadian stock exchange operator, posted a 10-per-cent drop in first-quarter profit amid slower trading.

TMX earned $56.8-million or 76 cents a share in the quarter, down from $63.1-million or 84 cents a year earlier. Revenue dipped 7 per cent to $162.3-million.

TMX is close to being acquired by a collection of Canadian financial institutions known as the Maple Group.

"The impact of market conditions on our equity business was somewhat offset by our diversified business model during the first quarter," said chief financial officer Michael Ptasznik.

"While issuer services, cash markets and energy markets trading revenue declined year over year, revenue in other key areas of our business grew over the first quarter of last year."

Whither China As Carolynne Wheeler writes today from Beijing, the soft landing for China that everyone keeps talking about is turning rather bumpy.

The latest round of economic data shows that while inflation slowed last month, to 3.4 per cent year on year, so did everything else. Retail sales are softening, industrial output is slowing and the country’s trade surplus has widened after both imports and exports came in lower than expected, the result of a collision of the euro zone crisis weakening demand for Chinese exports, and tough property market measures at home eroding domestic confidence.

"Just about everything in China’s economy seems to have gone backwards in April," said Mark Williams, chief Asia economist at Capital Economics in London.

"Growth of retail spending, investment, industrial output and imports declined. Lending slowed. On the positive side, inflation fell too. Even if it hadn’t, today’s raft of awful data would very likely prompt a policy response."

Europe in the mud While the political tussle goes on in Greece today, the European Commission projects continued economic troubles in the euro zone.

The EC today forecast that the overall economy of the 17 nations that share the euro will sink this year by 0.3 per cent and rebound next year by just 1 per cent. So, yes, recovery is in sight but it's a long way off.

"Following the output contraction in late 2011, the EU economy is estimated to be currently in a mild recession," the EC said today, referring to the broader 27-member European Union.

"While uncertainty about economic and financial prospects remains high, strong policy actions and major advancements in the EU institutional framework have brought about an easing of financial market tensions in the beginning of 2012 and a tentative stabilization of confidence, expected to further strengthen over the forecast period. Together with an expected acceleration in global growth, the recovery is forecast to set in slowly from the second half of the year on."

 

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