JPMorgan

A core belief here at Dealbreaker HQ is that we’d be really good rich people.1 No conservative 401(k)s and unborn-children-college-funds for us; we’d dedicate ourselves to lives of sybaritic excess. For me, that means that if someone wants to die and leave me an oil fortune, I’ll be putting Morandis on the wall, DRCs in the cellar, and variable prepaid forwards in the trust fund. Everyone needs a little beauty in their life, and also in their trust fund.

That must have been what motivated JPMorgan to pitch Skelly oil heiress and “acute stress syndrome” sufferer2 Ann Fletcher to enter into variable prepaid forwards on the Exxon Mobil stock in her trust. That or:

The value of the Trust prior to entering into the May 2000 VPF was $14,392,000. As of June 30, 2003, the sum of the Trust’s repayment obligations under the three VPFs had grown to $10,336,050. The value of the Trust at the time the Bank resigned as co-trustee [in March 2006] was $12,515,085.57. The Trust’s associated decline in principal was $1.88 million.

The Bank produced emails and spreadsheets to show that the Bank earned $1,127,189 from the VPFs. Expert testimony indicates that the Bank earned as much as $2,000,000 in profit.

So, I dunno, I feel like 7.8% in profits over 6 years is a not bad result on a pretty vanilla equity financing trade?

You can read the opinion, some of which strikes me as being pretty clearly wrong but hey I am not an Oklahoma trusts lawyer,3 here. Baaaaaasically there was a trust, and it had stock, and the idea was to pay the dividends of the stock to Fletcher during her lifetime and then, when she died, to give half the stock to her children and the other half to charity. At some point someone – JPMorgan? Fletcher? – conceived the idea that Fletcher should get much more money during her lifetime, basically by selling stock and pocketing the proceeds, leaving of course much less stock for the children and charity. So that happened. Read more »

JPMorgan Chase Chief Executive Jamie Dimon said his company has lost up to $10 billion as a result of the government asking him to buy teetering Wall Street firm Bear Stearns during the financial crisis. “Someone said the Fed did us a favor to finance some of this or something like that. No no no. We did them a favor,” Dimon said, speaking at a Council on Foreign Relations event. “I’m going to say we’ve lost $5 billion to $10 billion on various things related to Bear Stearns now. And yes, I put it in the unfair category,” the CEO added. [CNBC]

Dimon recalls that when he e-mailed his senior executives, back in 2010, first proposing the JPMorgan Chase bus tour, which is designed to demonstrate to clients, employees, and important people around the country that the bank is a force for good in the world. But, as in almost everything related to JPMorgan, Dimon prevailed. “That’s bullshit. We have to live our lives and do the right thing,” he told them…At stop after stop, the executives emerged from their bus cocoon into what they called “the Tunnel of Love,” where employees surrounded them for hugs, fist pumps, and high fives. [VF]

Drew was something of an unusual figure on Wall Street and not easily categorized. She was known for her small, girlish voice but could let loose with profanity when angered. She was the daughter of a Newark lawyer and had a reputation as a tough adversary but practically blushed whenever she spoke about her husband, a periodontist who was her high-school sweetheart and played on the Johns Hopkins basketball team. Tall, with expensive blond hair, she dressed impeccably for the office, favoring classic Chanel suits and Manolo Blahnik shoes, as well as a blinding emerald-cut diamond ring; but she and her husband never left the affluent but unremarkable suburban neighborhood in Short Hills, N.J., where they settled more than 20 years ago. [NYT]

So, subprime mortgage-backed securities. Here’s a schematic:

  • Banks packaged subprime mortgages into bonds and sold them to people.
  • Something.
  • The bonds were bad and the people lost money.

What’s the something? There are two main theories. Theory 1 says that everyone knew at some lizard-brain level that it was a bad idea to give lots of money to poor unemployed people with low credit scores to buy overpriced houses, but figured it would work out fine if house prices kept going up. This worked until it didn’t; when house prices went down, badness ensued.

Theory 2 says that, while mortgage originators and securitizers knew that they were giving mortgages to people who had no chance of paying them back, the buyers of those mortgages had no idea: they thought that the originators were holding them to rigorous underwriting standards, where “rigorous” is read to mean “other than requiring a job, or an income, or assets, or a credit score.” When that turned out to be false, badness ensued.

Theory 1 has the benefit of probably being right.1 Theory 2 is superior on every other metric. For one thing, it fits well with deep cultural desires to find villains for the subprime crisis, and punish them. For another, it better fits the explicit facts. No subprime offering document actually said “these guys are all just terrible reprobates and the only way you’ll get your money back is if they can find a greater fool to buy their overpriced house when their rate resets.” But there’s no shortage of internal emails that say – well:

In connection with the Bear Stearns Second Lien Trust 2007-1 (“BSSLT 2007-1”) securitization, for example, one Bear Stearns executive asked whether the securitization was a “going out of business sale” and expressed a desire to “close this dog.” In another internal email, the SACO 2006-8 securitization was referred to as a “SACK OF SHIT”2 and a “shit breather.”

Thanks Eric Schneiderman! Read more »

  • 21 Sep 2012 at 1:29 PM

The CDX And The Whale

The OCC report on bank derivative activities is rarely what you would call a laugh riot but I enjoyed that the 2Q2012 one released today gives the London Whale a belated sad trombone:

Commercial banks and savings associations reported trading revenue of $2.0 billion in the second quarter of 2012, 69 percent lower than the first quarter of 2012, and 73 percent lower than in the second quarter of 2011, the Office of the Comptroller of the Currency reported today in the OCC’s Quarterly Report on Bank Trading and Derivatives Activities.

“Trading revenues were weak in the second quarter,” said Martin Pfinsgraff, Deputy Comptroller for Credit and Market Risk. “While both normal seasonal weakness and reduced client demand played a role, it was clearly the highly-publicized losses at JPMorgan Chase that caused the sharp drop in trading revenues.” Mr. Pfinsgraff noted that JPMorgan Chase reported a $3.7 billion loss from credit trading activities, causing the bank to report an aggregate $420 million trading loss for the quarter.

How big a deal Whaledemort is depends on your denominator: compared to JPMorgan’s assets, or even its revenues, he’s a drop in the ocean, but his misadventures in credit derivatives did wipe out two-thirds of all derivative trading revenues among all US banks. And he’s a good enough excuse to talk about a random assortment of other credit-derivative-trading things from the last few days. First is a neat Bloomberg article (appears to be terminal-only now) about CDX NA HY 19: Read more »

Jamie Dimon, the outspoken chief executive of JPMorgan Chase, sat down on Tuesday for what banking analysts called a “fireside chat” during the Barclays 2012 Global Financial Services Conference. Known for his hands-on management style and confident swagger, Mr. Dimon has been navigating the fallout from a rare misstep in his career after JPMorgan announced a multibillion-dollar loss on a complex credit bet at its chief investment office unit. During a question-and-answer session with Jason Goldberg, a Barclays analyst, Mr. Dimon responded to questions about things like his stance on the mounting turmoil in Europe and regulatory changes, in particular the Volcker Rule, which restricts banks from trading with their own money. Mr. Goldberg started by asking Mr. Dimon about the rationale behind shaking up the upper echelons of JPMorgan’s executive suite in July. “It had nothing to do with the chief investment office,” Mr. Dimon said. He added that “there is nothing mystical, folks,” because the moves enabled greater cross-selling. “Cross-selling is a big deal, and we do an exceptionally good job,” he said…Tackling the issue of whether the big banks should be broken up, Mr. Goldberg asked Mr. Dimon about recent calls to break up the major banks. “There are huge benefits to size,” Mr. Dimon said. He noted that JPMorgan’s size allowed it to be “a port in the storm” during the market turmoil of 2008. “Big banks have a function in society.” The United States, he added, has the “best, widest, deepest and most transparent capital markets in the world.” Cautioning against needless reform, Mr. Dimon said, “Let’s make sure we keep that before we do a bunch of stupid stuff that destroys that.“ [Dealbook]