CDX

  • 30 Jan 2013 at 2:32 PM

Human-Whale Relations At JPMorgan Were Pretty Frosty

Is JPMorgan too big to manage the quantity of public confusion about its operations? Maybe? This Reuters story about how JPMorgan was betting against its own Whale trades is a bit silly: the fact that JPMorgan’s investment bank dealer desk may have been long (short) some of the instruments that JPMorgan’s Chief Investment Office was short (long) is not all that noteworthy. JPMorgan contains multitudes; the dealer desk and the CIO sit in different places and do different things and generally might have similar, offsetting, or entirely unrelated positions.1 In fact if you assume that the positions at issue here were mainly the Whale’s massive CDX NA IG position – he was very very long index credit, among other trades – you could imagine that the dealer desk would sort of naturally be short the same thing. A big part of a dealer’s job is to (1) write single-name CDS to people who want to short particular names and (2) buy index CDS to hedge.2 So it would naturally be looking to buy index protection, and if a certain whale of its acquaintance was selling – why not?

Still there is a piece of news here, which is this:

Two people familiar with Iksil and his boss, Javier Martin-Artajo, said the two CIO employees complained about the investment bank’s actions in the spring of 2012, accusing its traders of deliberately trying to move the market against the CIO by leaking information on its position to hedge funds. Iksil made his complaint to a member of JPMorgan’s compliance department, one of the people said. But those same sources said they had not seen any evidence to support that claim …

So, maybe news? There’s no evidence to support it; perhaps it’s just the Whale’s (retrospectively justified?) persecution complex. Still: the Whale crew thought that the investment bank were trying to make them take losses. Imagine that it’s true! Why would it be true? Read more »

Coincidentally while I was noodling about bond indexes on Friday so was Goldman credit strategy research. Here I will show you a chart they made:

So what this is is performance of ETF, index-y bonds versus performance of otherwise similar but non-ETF, non-indexy bonds. Goldman took the bonds that are in the iBoxx US liquid investment grade index (IBOXIG), which underlies the $21 billion LQD ETF, and compared them to other bonds that are – take their word for it – similar, but not in the liquid index (but in the broader ICPRDOV index), and saw that the ETF-y ones outperformed the non-ETF-y ones – by about ~4% of price / 60bps of spread over the last three years. Here are some more words on the word you have to take for it: 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 »

  • 09 Apr 2012 at 4:58 PM

You Say “Voldemort” Like That’s A Bad Thing

Do you think that Bruno Iksil, when he woke up in Paris on Friday looking forward to trading from home in his black jeans, expected to become an international celebrity? The evidence suggests not. You may remember Iksil – possibly under other names like “Voldemort” or “the London Whale™” as the JPMorgan chief investment office trader who has sold protection on $100bn of notional of a CDX investment grade index to … hedge … JPMorgan’s massive short position in credit … or … something?* Anyway a lot of people are mad at him because that’s just too much protection to sell on that index and so they are complaining to Bloomberg and the Journal about how he is manipulating the market and also taking huge proprietary risks with JPMorgan capital that should obvs be regulated out of existence.

This is weird in a lot of ways but one of them is that you can distill a lot of the Volcker-Rule complaints into “my God, you’re telling me that JPMorgan is exposed to $100bn of credit risk on investment-grade debt issued by a diverse mix of 121 U.S. companies!?” No! JPMorgan is exposed to something like $750bn of credit risk on debt issued by a diverse mix of companies. Some of it’s non-US. Some of it’s not even investment grade. And that’s just in its loan book.** Is writing $100bn of protection on the CDX.IG.NA.9 a terrible risk to take with investor and depositor and government-backstop money? Well, define “terrible risk.” It’s certainly less risky than operating the rest of JPMorgan.*** Read more »