FORTUNE — Casting off JPMorgan’s London Whale may be harder than Jamie Dimon thinks.
On Friday, when JPMorgan Chase (JPM) reported its third quarter record profits, CEO Dimon said the toxic mix of synthetic trades that have plagued the bank was a “sideshow.” In conference calls with reporters and analysts, he said numerous times that the losses weren’t an issue any more, and he hoped we could all stop talking about it.
And in a way Dimon is right. Overall, the trading loss is now at $6.2 billion, and could grow by another $1 billion. But in the quarter it was a mere $449 million. That wasn’t even enough to crater the bottom line of the chief investment office, the unit which was until recently responsible for the losing trades, let alone the whole bank. London Whale and all, the bank ended up earning an astounding $5.7 billion from July through September. The rest of the losses, if there are any (Dimon hinted at the fact that the remaining position could make a profit), will drip out overtime. JPMorgan has become Too Big To Lose.
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But in the long-haul the London Whale may have cost the bank more than it appears. The stated point of the chief investment office was to hedge the bank’s lending division. But Ina Drew, the former head of the unit that gave birth to the Whale, believed that she could not only hedge the bank, but make money while doing it. And she made a lot. More importantly, she made a lot of money when other parts of the bank weren’t.
In 2008 and 2009 alone, the CIO office had profits of $4.8 billion. That’s a huge amount. It’s five times as much as the bank’s retail unit, which includes banking and investment advice, made in the same time. And it’s only $2 billion short of what the much larger, and much better known, investment banking division of JPMorgan made in the same time.
In the wake of the Whale, JPMorgan has significantly cut back what the CIO does. The bank is already projecting that the unit will lose $300 million in interest in the next quarter, meaning what it is paying for protection is more than what the bank will make back in interest. It’s gone ultra safe. That’s normal for a hedge, and not a heck of a lot to pay to protect a portfolio that is $350 billion. But just a few years ago, the unit used to be a money printer.
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Some of those losses will be offset by gains in the portfolio. JPMorgan said that the value of the CIO’s portfolio rose by $3 billion in the third quarter. That was because bond prices rose. In bad times, though, it’s not clear gains in the CIO’s portfolio will be there to draw on.
For a while, the history of the financial crisis and Jamie Dimon stood as this: JPMorgan’s CEO spotted the subprime mortgage market blowup early, steered his bank clear of it and emerged a hero. But what has become clear this year is that’s only part of the story. Behind the scenes Dimon had a little know unit making huge risky bets that miraculously paid off in times of trouble. And now it’s gone.
