When I got the Senate Permanent Subcommittee on Investigations report on the London Whale last night, I did what any sensible human would do: I ctrl-F’ed for my name and the names of my friends and enemies, gloated briefly, and then set to work rationalizing not reading the rest of it. After all, it’s ridiculous for the Senate to investigate a basically legitimate trade that, though it lost some money, did nothing to destabilize JPMorgan or the financial system as a whole. And we’ve heard all the important Whale stuff before, including in JPMorgan’s own Whale autopsy, and even then it was old news.
But then I started skimming the executive summary and after underlining every sentence in the first ten pages I figured I’d have to give it a closer look. It’s an amazing, horrifying read.
What was the Whale up to? I don’t think you’ll get a better explanation than this, from a January 2012 presentation by the Whale himself, Bruno Iksil (page 74):
Mr. Iksil’s presentation then proposed executing “the trades that make sense.” Specifically, it proposed:
The executive who led the J.P. Morgan Chase Co. cash-management unit at the center of the “London Whale” debacle is scheduled to testify Friday before a Senate panel probing the $6 billion trading loss at the nation’s largest bank by assets. Former Chief Investment Officer Ina Drew, who resigned as head of the unit last May, will make her first public appearance since the New York company disclosed the trading losses last spring. [WSJ]
We* don’t really find it particularly amusing amusing or post-worthy that a Jefferies employee misguidedly put Jamie Dimon on an email about a working group list but judging by the number of people who’ve sent it to us, this is the height of banking humor, so here you go: Read more »
There are a lot of things that, if you wanted to, you could legitimately blame on former JP Morgan employee London P. Whale. The $6.2 billion trading loss the bank incurred over the summer. Ina Drew getting fired. This awkward phone call. Some stuff you can’t pin on him, though many have tried: male pattern baldness, the bombing of Pearl Harbor, Apple Maps, Lehman Brothers’ bankruptcy, tempting as it may be.Read more »
Mike Mayo: I think what I hear UBS saying in their presentation is, if I’m an affluent customer, I’ll feel a lot better going to UBS if they have a 13 percent capital ratio than another big bank with a 10 percent ratio, do you agree with that or disagree? Jamie Dimon: So you would go to UBS and not JPMorgan? Mike Mayo: I didn’t say that, that’s their argument. Jamie Dimon: That’s why I’m richer than you. [BloombergTV]
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 »