JPMorgan had a … quarter, whatever, go read about it. Top and bottom-line beats with revs up and net income down y/o/y. And JPMorgan’s investment bank had a … you’d have to say pretty good quarter, with fees still not where I’d like to see them as a former fee-getting banker but with FICC bouncing back nicely from last quarter.

But who cares about the investment bank? Turns out we’ve been looking at the wrong JPMorgan all along, per this sweet Bloomberg story that examines the London Whale in his native ecosystem:

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon has transformed the bank’s chief investment office in the past five years, increasing the size and risk of its speculative bets, according to five former executives with direct knowledge of the changes.

Achilles Macris, hired in 2006 as the CIO’s top executive in London, led an expansion into corporate and mortgage-debt investments with a mandate to generate profits for the New York- based bank, three of the former employees said. Dimon, 56, closely supervised the shift from the CIO’s previous focus on protecting JPMorgan from risks inherent in its banking business, such as interest-rate and currency movements, they said.

Some of Macris’s bets are now so large that JPMorgan probably can’t unwind them without losing money or roiling financial markets, the former executives said, based on knowledge gleaned from people inside the bank and dealers at other firms.

Har har har. Much of my admiration for Jamie Dimon comes from the fact that JPMorgan more or less does what Goldman is always accused of doing, and more or less gets away with it, so it’s nice to have proof that JPMorgan is Just A Giant Hedge Fund Masquerading As A Bank. And the story is juicy; I loved the description of Macris as “always ha[ving] off-the-wall ideas, but in hindsight sort of smart ideas,” which golly I have met people like that and I wouldn’t necessarily trust them with all my cash.

But anyway it all sounds very hedge fundy, and there are some ominous signs: as Bloomberg points out, “One public sign that the chief investment office does more than hedge: Its trading risk is on par with that of JPMorgan’s investment bank.” True, or close enough. Here is JPM IB VaR vs. CIO VaR ($mm 95% daily VaR, reported page 42 here and, for 2010, page 38 here):

But … Jamie’s not exactly getting a ton for his money. Here is dollars of quarterly revenues per dollar of average daily VaR for the investment bank (IB net revs divided by IB total VaR including credit portfolio) and for the chief investment office (VaR is reported; I eyeball revs as securities gains in Treasury & CIO from page 35 here plus net interest income from page 34; that is kind of wholly arbitrary and also CIO appears not to mark to market so “securities gains” is not comparable to to MTM gains, but do you have better ideas?):

Or, if you like, revenues to assets (same caveats on what “revenues” means; assets are IB total assets from page 11 of today’s supplement and treasury & CIO average investment securities portfolio from page 35):

So you could read this as something like: of course JPMorgan gets a lot more revenues out of a largely fee/commission/spread-earning business like IB than it does out of a largely buy-and-hold business like CIO. True. Or you could read it as: shut up, JPM’s not marking CIO to market makes this whole exercise completely silly, maybe the internal hedge fund is making truckloads of money on a mark-to-market basis and would be blowing out the investment bank if they reported comparably. Also true. But if you divide those charts by each other you’ll notice that CIO’s balance sheet – y’know, “managing the long-term structural assets and liabilities of the firm and is not focused on short-term profits” – actually seems to be riskier than the daily-traded inventory of the investment bank (VaR per balance sheet, in basis points):

So, I don’t know. With declining activity, increasing regulation, etc. etc., maybe investment banking isn’t as great a business as it used to be. But I suspect it remains better than giving all your money to some CIO kooks and asking them to buy up all the structured credit that there is in the world.

Earnings Release
Earnings Presentation
Earnings Supplement
JPMorgan Said to Transform Treasury to Prop Trading [Bloomberg]

35 comments (hidden to protect delicate sensibilities)
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Comments (35)

  1. Posted by dumb | April 13, 2012 at 11:10 AM

    Matts back in chart heaven

  2. Posted by Guest | April 13, 2012 at 11:20 AM

    No shit, if the hedge book had a far lower VaR than the IB, how good a hedge could it be?

  3. Posted by UBS Cuant | April 13, 2012 at 11:25 AM

    wait what are those things with the lines called again?

  4. Posted by PermaGuestII | April 13, 2012 at 11:26 AM

    Wait a second– so we weren't supposed to hire Hector?


  5. Posted by guest | April 13, 2012 at 11:28 AM

    I enjoy they still use VaR

  6. Posted by P. Falcone | April 13, 2012 at 11:31 AM

    What do books about shrubs have to do with any of this? This all seems like a great strategy, although they seem to place a bit too much emphasis liquidity.

  7. Posted by guest | April 13, 2012 at 11:32 AM

    What is this revenue to Var you speak of ?

    – J. Corzine

  8. Posted by Guest1 | April 13, 2012 at 11:34 AM

    emphaaasis, on the wrong syllllllable

  9. Posted by Conspiracy Redux | April 13, 2012 at 11:37 AM

    JPMorgan owns the Fed, literally owning a chunk of its shares. Case dimissed.

  10. Posted by Guest | April 13, 2012 at 11:39 AM

    JD, don't worry. If they try to sue you for losing a boatload of customers' deposits because you bet large, you can always use the insurance money to pay for your defense.

  11. Posted by Maxine Waters | April 13, 2012 at 11:46 AM

    Holy shit, I better hold some hearings about this and figure out who Bernake's CEO really is.

  12. Posted by Guestest | April 13, 2012 at 12:17 PM

    Crap, we just realized we've got an Achilles Heel in our org!

    — JPM Board

  13. Posted by StructCredit Quant | April 13, 2012 at 12:21 PM

    As much as this Voldemort fellow might want to, it's just not possible to "buy up all the structured credit there is in the world" as you suggest. Goldman will just make more.

  14. Posted by The Fed | April 13, 2012 at 12:25 PM

    Hey, so does every bank. CHECK YOU REGULATION I

  15. Posted by John Merriweather | April 13, 2012 at 12:27 PM

    It worked for me

  16. Posted by guest | April 13, 2012 at 12:29 PM

    JP Morgan Chase sounds like a nice WASPY bank. This is why they can get away with doing what Goldman Sachs does without the public criticism.

    – Shabbas Goy

  17. Posted by Guest | April 13, 2012 at 12:35 PM


  18. Posted by RBS Wasp | April 13, 2012 at 12:42 PM

    Hasn't worked to well for us.

  19. Posted by J. Skilling | April 13, 2012 at 12:43 PM

    Worked for us.

  20. Posted by Wealth Observer | April 13, 2012 at 12:45 PM

    I heard that Achilles Macris is well heeled.

  21. Posted by Guest Desserts | April 13, 2012 at 12:50 PM


  22. Posted by Guest | April 13, 2012 at 1:00 PM

    Whoa! What?

    – Guy who doesn't even check Dealbreaker before noon anymore

  23. Posted by PermaGuestII | April 13, 2012 at 1:00 PM

    Scots != Ango-Saxons

  24. Posted by Guestalicious | April 13, 2012 at 1:06 PM

    The portfolio is largely used to hedge the LOB where the funds are coming from, namely the deposit gathering units. Since IB isn't a deposit gatherer, its assets aren't being hedged by the CIO portfolio. Listen to a conference call every once in awhile there chief.

  25. Posted by Guest | April 13, 2012 at 1:11 PM

    what command do i have to write to calculate this on a TI-83 ?

    -UBS MD

  26. Posted by Guest | April 13, 2012 at 1:16 PM

    Honestly, when I see a chart I have loads of fun tracing the trends, imagining I'm on a sled of sorts riding them out.

  27. Posted by RBS Wasp | April 13, 2012 at 1:30 PM

    Well, I guess you can see why I'm at RBS

  28. Posted by guest | April 13, 2012 at 1:36 PM

    Even though there are stories up, before noon, every single day? Interesting.

  29. Posted by PermaGuestII | April 13, 2012 at 6:06 PM

    Ah, an updated version of the Erie War.

    -Commodore Vanderbilt

  30. Posted by Watson | April 13, 2012 at 7:26 PM

    I'll take obscure 19th Century business history references for $400, please, Alex.

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