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Hedgie saw dangers of bank betting

Date: Wednesday, May 30, 2012
Author: Michelle Celarier, New York Post

Billionaire hedge-fund titan Paul Singer saw it coming.

Days before JPMorgan Chase CEO Jamie Dimon announced the trading debacle that resulted in a $2 billion loss, Singer wrote that the Volcker Rule would not stop big banks from gambling with their own funds.

The Volcker Rule “will lead to headcount reductions and desktop name plates sent out for amendment, but no — we repeat, no — changes in the risk profile of financial institutions,” Singer wrote in his May 2 first-quarter letter to investors, a copy of which has been obtained by The Post.

That was eight days before Dimon’s embarrassing announcement. Since then, Ina Drew, head of Chase’s Chief Investment Office, where the soured trades were made, has resigned and more exits are expected.

The Volcker Rule is a provision in the Dodd-Frank financial regulation designed to stop banks from making risky bets.

Singer, who runs $20 billion Elliott Capital Management, has long been a critic of Dodd-Frank.

His Republican Party-leaning political and economic views, which are outlined in his lengthy quarterly letters, are highly sought out by investors.

In this one, he gives a surprising nod to the Democratic Party-sponsored Volcker Rule.

“The point has been made that banks should not be speculating with capital that is effectively protected by either the government guarantee of deposit or special access to free or cheap government-supplied funds during periods of crisis,” he wrote.

“This argument is actually a good one, especially since proprietary trading has become a huge contributor to banking institutions’ profitability in recent decades,” he noted.

But the praise was short-lived. While the rule was “one of the elements of Dodd-Frank that was an attempt to solve real problems,” he continued, “unfortunately the result is unworkable and dysfunctional.”