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 »
I’m mesmerized by this JPMorgan research chart showing that big banks shouldn’t be broken up because they lend so much more to businesses and consumers than small banks do. See:
Basically for every dollar of normalized capital, JPMorgan has extended $12 of credit between March 2010 and September 2012, according to this note by JPM’s Michael Cembalest. Whereas the small banks have loaned out only about $2. Get with the program, small banks!
The trick here – besides “normalized capital”1 – is that “credit extended” means (1) “changes in commercial and consumer loan balances” plus (2) syndicated loan, corporate bond, muni bond, etc. underwriting. That is, if you stand between a company looking for money and the market that provides it, you get, um, credit for extending credit, whether you do that standing-between in traditional banking ways (take deposit, make loans) or in traditional investment banking ways (match bond buyer with bond issuer). “See, we’re lending,” says JPMorgan. “We’re just not lending our money.”2
As a rhetorical move, I say: A+. Read more »
Do you have an opinion on whether JPMorgan is too big to manage and should be broken into its constituent bits? You do? Hey, that’s great, good for you. Here’s what you can do about it, in roughly descending order of effectiveness:
- Be Jamie Dimon, do what you want.
- Be a board member, try to convince others to do what you want.
- Be a big activist1 hedge fund, call up the board and management and try to make them do what you want.1
- Be a sell-side analyst, regulator, politician, former bank CEO, pundit, blogger, or person; write down what you want JPMorgan to do and why you want them to do it; and hope that they read it.
- Same, but with Twitter.
- Keep it to yourself and go about your business like a human.
- Be a troublemaking shareholder activist2 and submit a shareholder proposal asking the board to include in the proxy an advisory vote on whether JPMorgan should form a committee to look into doing the thing you want or something else like it or not like it.
I feel like this exchange did not go well for Jamie Dimon:
[Elliott Capital's Paul] Singer said the unfathomable nature of banks’ public accounts made it impossible to know which were “actually risky or sound”. … Mr Singer noted that derivatives positions, in particular, were difficult for outside investors to parse and worried that banks did not always collateralise their positions. Mr Dimon said the bank did for all “major” clients. Mr Singer retorted: “Well, we’re a minor client then.”
Whoops! Guess someone else doesn’t know what positions banks collateralize. I suspect someone at Elliott is already on the phone with JPMorgan to renegotiate their CSA. Also so many other people; I count about $50 billion of uncollateralized (fair value) derivative exposure at JPMorgan, suggesting that it fully collateralizes a little under two-thirds of its trades.1 Perhaps those are the two-thirds with the major clients, but if so that seems a little irrelevant. That’s a lot of minor-client money.
Why does Singer care? Well I guess he wants better collateral terms from JPMorgan? More seriously … there is whatever incentive to say things that always exists at Davos sessions, which I guess is a thing, ugh.2 Then there is the broad question of whether banks are too opaque to invest in. Singer is not alone in thinking that the answer is no; we talked a while back about how a lot of smart people get kind of freaked out by bank financial statements; derivatives, as well as other buzzwords like prop trading and opacity, play a role in their conclusions as well. Also here is a funny article about how 60% of Bloomberg subscribers are basically commie anarchists: Read more »
“At first I thought it was a friend of mine pulling a prank. I thought it was Lloyd Blankfein,” Jamie Dimon said yesterday in Germany, re: the time Tom Brady called to cheer him up about JPMorgan’s $6.2 billion trading loss. He didn’t elaborate but it’s pretty obvious that the day Goldman was sued over Abacus, Dimon called over to GS pretending to be Aretha Franklin, telling Lloyd “no one’s got any R-E-S-P-E-C-T for clever investment products,” while months after JPMorgan bought Bear Stears, JD received a call from someone claiming to be “Jimmy Cayne” calling from the lobby with a sample of 90210 kush that he insisted Dimon had to come down and try but “A-SAP, ’cause Big J had to double park his truck.” [Bloomberg]
Back in October, the most wonderful aspect of the JPMorgan Whale Tale emerged in the pages of Vanity Fair: the day Vice-Chairman Jimmy Lee barricaded himself in his office determined to come up with a way to help Jamie Dimon, and after hours of thinking real hard, summoned his six secretaries and told them they had a job to do, which was getting Tom Brady on the horn so he could deliver a pep talk sure to cheer up the boss. Was the call kind of awkward, considering the two had never spoken and Brady’s lack of useful investment ideas likely meant his big speech involved not much more than “Even Super Bowl champion quarterbacks have bad days” and “Keep your chin up out there?” Probably. And yet some sort of bond was clearly forged, which would explain why Dimon felt compelled to throw Brady this bone: Read more »