“And I want you to know the London Whale issue is dead,” Jamie Dimon recently told a bunch of school children. “The Whale has been harpooned. Dessicated. Cremated…I am going to bury its ashes all over.” [NYM]
You Misplace 5 Or 6 Billion Dollars And All Of A Sudden People Stop Trusting You To Keep Track Of Your MoneyBy Matt Levine
When JPMorgan’s whale drowned a lot of people asked “where were the regulators?” and that was a silly question, because the people with the most incentive and ability to keep the whale afloat were, in descending order, (1) the whale, (2) the whale’s bosses, (3) the whale’s bosses bosses, (4) the regulators, and (5) the people asking “where were the regulators?,” so if categories 1-3 missed the problem then there’s no reason to get all mad at category 4. “If X’s could do Y they wouldn’t be X’s” is an important tool to keep in your mental toolkit, and if regulators could distinguish good from bad trades they’d be at least risk managers and probably, like, Warren Buffett.
What regulators are supposed to do, ideally, is not pick trades but rather set up systems to prevent bad trades from having ruinous systemic effects, and a major method of doing so is capital regulation. JPMorgan lost $5.8 billion on whale-failing, and if you or I lost $5.8 billion we would probably be scaling back our vacation plans, but Jamie Dimon isn’t because JPMorgan had lots and lots more money where that came from. Capital!, in both senses of that exclamation.
JPMorgan can’t outrun the ripples from its multibillion-dollar “London Whale” trading blunder. The largest U.S. bank admitted Thursday in a federal filing that it pushed back a plan to resume share buybacks, scaled back several key measures of capital at the request of regulators and lost money on 28 trading days in the second quarter. The developments came as the New York company tried to unwind a series of problematic positions taken by a trader in the bank’s Chief Investment Office nicknamed the “London Whale” for his outsize market bets. [WSJ]
It feels virtuous every so often to take glance over at the triparty repo market. You get a nice dose of horrified vertigo and then go back to your life and don’t think about it for a while and that always feels better. Now is a good time to get back to it, what with continued worrying about money-market funds – a core player in the market – and two interesting things this week about triparty repo: this testimony from Matthew Eichner of the Fed to a Senate subcommittee, and this report from Fitch.
Here is how I imagine triparty repo:
- A bunch of money market funds and other cash investors keep $1.8 billion of cash at JPMorgan and Bank of New York Mellon, the “clearing banks” in the triparty system.
- A bunch of securities dealers keep a pile of securities – worth, on a good day, more than $1.8bn – to JPM and BoNY Mellon.
- The dealers need money to fund those securities, because what are they going to do, pay for them themselves?
- Every afternoon, the cash investors and the securities dealers frantically negotiate which dealers swap their securities (at negotiated haircuts) for which cash investors’ cash.
- Every night, the cash sleeps in the (notional) arms of the securities dealers, while the securities (and a promise to buy them back in the morning) sleep in the (notional) arms of the cash investors.
- Every morning, the cash wakes up and springs from the dealers’ beds back into the waiting arms of the cash investors, and vice versa etc.
- Which means that the dealers need to borrow cash to be able to give it back to the investors. Where do they get the money?
- Well, from JPMorgan or BoNY.
- Where do JPM and BoNY get the money?
- Well, from deposits.
- Whose deposits?
- Well, the deposits of the cash investors.
More or less, right? Read more »
Li’l Dimons started receiving numbers today. Read more »
4 Percent Of Americans Think Jamie Dimon Is Prepping His Bike To Jump The 526 Feet Between The Top Of JPMorgan Headquarters And The Roof Of The Old Bear Stearns BuildingBy Bess Levin
In spite of JPMorgan Chase’s well-publicized loss of more than $5 billion, just 14 percent of Americans polled correctly identified C.E.O. Jamie Dimon as a New York banker. Sixty-six percent say they don’t know who he is, while 9 percent believe he’s a Texas congressman, 7 percent think he’s an X Games skateboarder, and just 4 percent believe he’s a daredevil motorcyclist. [VanityFair]
One silly thing to think about JPMorgan’s executive reshuffling announced today is “fuck you Sandy Weill!” Before today JPMorgan looked a bit like a loose confederation of financial services businesses, including in particular three different institutional units: the Global Corporate Bank, a bank that lends money to companies, the Investment Bank, an investment bank that does mergers and trades securities, and Treasury & Securities Services, which I think of as sort of a meta-bank that offers big companies checking accounts and safe deposit boxes but, like, bigger. Now all of those things are being combined into the Corporate & Investment Bank, irrevocably mixing corporate (good!) and investment (bad!) banking into one unholy mess seasoned liberally with credit default swaps. The combination will sadden anyone with any hopes of bringing back Glass-Steagall, but it’s paying dividends for JPMorgan already, as the C&IB “will be looking to our global leaders to help implement strategy and deliver top-line synergies, while optimizing the model across all functions in the regions,” a masterpiece of jargon that I doubt any of its businesses could have managed on their own.
“Top-line synergies” of course means that now when you open a cash management account with former TSS you get not a toaster but a meeting in which you’re pitched on a loan from the former corporate bank and a potential M&A deal opportunity with the former investment bank, and vice versa mutatis mutandis if you instead enter JPMorgan through the lending or advisory or trading doors. Because the goal is not merely for JPMorgan to do all of the financial-services functions that some people think should be separated from each other, but for JPMorgan to do all of those functions for all of the clients in the world, because some people just don’t worry that much about “too big to fail.” Read more »