JP Morgan Loses 2 Billion in 6 Weeks

[LVG]

http://www.latimes.com/business/la-fi-0511-jpmorgan-chase-20120511,0,4625412.story

Barely four years after Wall Street's wrong-way bets plunged the world into a financial crisis, JPMorgan Chase & Co. admitted it lost $2 billion from a trading portfolio that was supposed to have helped the bank manage credit risk.

"These were egregious mistakes," said Chief Executive Jamie Dimon, who is considered one of the world's savviest bankers. "We have egg on our face, and we deserve any criticism we get."

...

Dimon told analysts that the bank racked up $2 billion in trading losses during the last six weeks, and that could "easily get worse." He said JPMorgan could suffer an additional $1-billion loss from the portfolio during the second quarter.

...

The losses stemmed from derivative bets that backfired in the company's Chief Investment Office. This part of the bank was in charge of trading to balance the company's assets and liabilities, although it had been criticized by some analysts for operating more like a hedge fund.

...

Critics of Wall Street lost no time in calling for regulators to proceed with cracking down on big banks such as JPMorgan, which began the year with $863 billion in federally insured domestic deposits.

...

At a minimum, JPMorgan's admission shows that large and unforeseen losses can erupt at any time despite the banks' efforts to limit risk-taking.

"It demonstrates that even at an institution like JPMorgan, which has done a remarkable job at staying out of trouble compared to other banks, a bolt out of the blue can come at any time," said Anthony Sabino, a law professor at St. John's University in New York.

The CNBC story here: http://www.cnbc.com/id/47377555

A few thoughts.

If this doesn't demonstrate that the derivatives market (a closed and opaque market) presents a real and present threat to the nation's financial system, I don't know what does.

The question is what interconnectedness is there between JP Morgan and the other major financial institutions? If this has been worse, would we be looking at systematic failures in the system? My hunch is the answer is yes.

Further, I think that this goes to show (again) that banks are engaged in "casino banking" in order to make money for themselves, not their clients. Which isn't necessarily a bad thing, except for when you realize that they also are an FDIC bank; if JPM goes down, the taxpayers are on the hook, at a minimum, for all the FDIC insured deposits. In short, JPM and many other banks are gambling with taxpayer money.

What will come of this? I don't know. I would like to see Glass-Steagall reinstituted with additional provisions to prevent international slip-through, the publicization of the derivatives market, and increased regulatory powers of the SEC and other relevant regulatory agencies.

 

[RugbyMuffin]

What will come of this?

A return to separating investment banks, and "regulated" banks ?

LOL. Yeah, I almost couldn't type that.

We will never get that mess back in the box.

But, what a great system that used to be. Back when you let the rich risk their own money, and not everyone else's.

 

[Dback Jon]

Rugby hit the nail on the head - that is what NEEDS to be done.

 

[LVG]

A return to separating investment banks, and "regulated" banks ?

LOL. Yeah, I almost couldn't type that.

We will never get that mess back in the box.

But, what a great system that used to be. Back when you let the rich risk their own money, and not everyone else's.

I know, I almost couldn't type the part about Glass Steagall. I think there was a very narrow opportunity to force the banks to do this, but that opportunity was lost under Geithner's "Do no harm" philosophy during the crisis.

What this crisis confirmed to me was that the Volker Rule doesn't go far enough in regulations and prohibitions. It's also coming out that this wasn't a 1 trader issue (there's a lot of speculation of "the London Whale"), but the CEO has admitted that the trades were part of a broader strategy.

 

[jefftheshark]

You must be registered for see images

JTS

 

[LVG]

So plywood has busted through the floor.

CDX - plywood - get it?

 

[jefftheshark]

So plywood has busted through the floor.

CDX - plywood - get it?

Yup...time to go out and build that radical skateboard ramp you've always dreamed of.

JTS

 

[LVG]

http://www.npr.org/blogs/money/2012/05/11/152488354/jp-morgans-2-billion-loss-explained?sc=fb&cc=fp

JPMorgan's $2 Billion Loss, Explained

The trade involved an index of corporate credit default swaps. These are essentially insurance policies that pay off if a company can't make payments on its debts. (Credit default swaps became a household name during the financial crisis, when they were central to the blowup of AIG, a giant insurance company.)

JPMorgan took the big hit when it tried to back off from the trade and had to sell at a loss.

...

The Volcker Rule, adopted after the financial crisis, will ban commercial banks from "proprietary trading" — using their own money to make speculative bets.

But the rule allows banks to make trades to hedge their risks. JPMorgan, not surprisingly, argues that this trade was a hedge gone wrong, not a speculative bet.

...

JPMorgan has more than enough money to cover the loss it announced yesterday. The bank made nearly $6 billion in profit in the first quarter of this year alone. And other profitable trades mean the bank's current net trading loss is less than $1 billion.

 

[jefftheshark]

http://www.npr.org/blogs/money/2012/05/11/152488354/jp-morgans-2-billion-loss-explained?sc=fb&cc=fp

Oh. Well now that it's been explained we can all rest easier.

Of course the people over at Fitch disagreed and dropped JPM's rating a notch today (nice of them to wait until after the bell, huh?), and they put them on negative credit watch, but that's easy to explain away too, as I'm sure it will be over the weekend. (I guess the guys trading IG CDX got a little peek behind the curtain today, but the SEC isn't concerned so why should anyone else be?) And then there's the little matter that the trade that cost them the $2 billion is tied up in an illiquid market that the mere unwinding of it will create all kinds of unintended consequences, but that's okay to because they made $6 billion this quarter, except for the pesky thing that they're leveraged over 20 to 1 (or even worse) so even a small increase in their CDX cost (something unlikely like a credit downgrade, or something else unforeseeable) will have huge ramifications, but not to worry, because they have the full faith and credit of the USA behind them.

Yep nothing to see here.

JTS

 

[LVG]

Oh. Well now that it's been explained we can all rest easier.

Of course the people over at Fitch disagreed and dropped JPM's rating a notch today (nice of them to wait until after the bell, huh?), and they put them on negative credit watch, but that's easy to explain away too, as I'm sure it will be over the weekend. (I guess the guys trading IG CDX got a little peek behind the curtain today, but the SEC isn't concerned so why should anyone else be?) And then there's the little matter that the trade that cost them the $2 billion is tied up in an illiquid market that the mere unwinding of it will create all kinds of unintended consequences, but that's okay to because they made $6 billion this quarter, except for the pesky thing that they're leveraged over 20 to 1 (or even worse) so even a small increase in their CDX cost (something unlikely like a credit downgrade, or something else unforeseeable) will have huge ramifications, but not to worry, because they have the full faith and credit of the USA behind them.

Yep nothing to see here.

JTS

You must be registered for see images attach

I want to tell all of the stockholders, the market, and the public that while we have lost 2 billion in the last 6 weeks, we are all very embarrassed by this, and JP Morgan will return to profitability shortly. After all, 2 billion is pocket change for JPM. Why, just the other day, I was having Jeeves check my sofa for pocket change, and found 3 billion dollars. So it's not that big of a deal.

Really, we're quite embarrassed. We have egg on our faces, plus other breakfast materials. But it's not a big deal. It's not like we have other derivatives that no one but us knows about on our books, and it's not like this was an investment policy that I specifically ordered or anything like that.

Nope. Anyway, I'm embarrassed that I actually have to apologize, err, I mean I'm embarrassed that I actually have to disclose, wait, that's not what I mean either. Let me start over.

I'm embarrassed that we lost this money, but really it's no big deal. You can go about your lives now. And remember - regulation is bad.

That is all.

 

[jefftheshark]

You must be registered for see images attach

I want to tell all of the stockholders, the market, and the public that while we have lost 2 billion in the last 6 weeks, we are all very embarrassed by this, and JP Morgan will return to profitability shortly. After all, 2 billion is pocket change for JPM. Why, just the other day, I was having Jeeves check my sofa for pocket change, and found 3 billion dollars. So it's not that big of a deal.

Really, we're quite embarrassed. We have egg on our faces, plus other breakfast materials. But it's not a big deal. It's not like we have other derivatives that no one but us knows about on our books, and it's not like this was an investment policy that I specifically ordered or anything like that.

Nope. Anyway, I'm embarrassed that I actually have to apologize, err, I mean I'm embarrassed that I actually have to disclose, wait, that's not what I mean either. Let me start over.

I'm embarrassed that we lost this money, but really it's no big deal. You can go about your lives now. And remember - regulation is bad.

That is all.

That's pretty damn funny right there. You know someday we're gonna have to meet and share a beer or two.

JTS

 

[LVG]

That's pretty damn funny right there. You know someday we're gonna have to meet and share a beer or two.

JTS

 

[Dback Jon]

 

[BillsCarnage]

...but that's okay to because they made $6 billion this quarter..

Sometimes ya gotta lose money to make money

Mean while Apple is laughing in the corner at their mere 6 billion.

 

[LVG]

http://n.pr/JpJSCK

Heads are rolling, resignations have started (including the chief investment officer), and losses may exceed 4 billion.

But no mention of changing the way JPM or other TBTF banks do business.

 

[Russ Smith]

Sometimes ya gotta lose money to make money

Mean while Apple is laughing in the corner at their mere 6 billion.

The more I look at Apple the more I see a balloon that's going to burst someday and take down a lot of people. the local papers had big articles about 10 days ago about how Apple used "accounting tricks" to avoid paying their fair share of state taxes in California, things like opening an office in Nevada(reno) for the sole purpose of allowing them to register earnings in Nevada which has no state tax. They do the same thing in many countries that have low corporate tax rates.

They make a lot of products people love, but it's pretty clear they'd do anything to increase profits and I think eventually they're going to fall, hard.