Michael Coyne is gonna take off now. Read more »
“Well That’s My Cue To Leave” Says Guy Who Handles “All Litigation And Government Investigations Affecting JP Morgan Around The World” After 957th Probe Into Bank’s AffairsBy Bess Levin
Bloomberg Investigation Concludes Drawing Parallels Between JPMorgan, Nazis Might’ve Been A Tad MuchBy Jon Shazar
From here on, the news organization will frown upon comparing the destruction of world-historic landmarks during wartime to unfavorable interest-rate swap settlements forced by JPMorgan Chase. Read more »
Half of today’s financial news stories are about how some government enforcement agency is looking into something you already knew about. This is very boring for me! Remember when Goldman lost a bunch of money by fat-fingering some options trades?1 That still happened. Remember how JPMorgan did some naughty things with California electricity markets? Those historical circumstances continue to obtain. Remember the Whale? Still a thing.
You could wonder about the substance of some of these investigations. JPMorgan’s electric boogaloo, while intensely naughty, also seems pretty clearly to have followed FERC/ISO rules to the letter, so it’s hard to imagine charging anyone with a crime, as the FBI is apparently contemplating.2 And while I don’t know much about the SEC rules re: electronic options trading, the actual thing that Goldman did was sell options really cheaply, and it would be pretty weird if there were a rule against that, so I don’t know where the SEC is going with its enforcement investigation.3 (The Whale, I’ll give you, that stuff seems bad.) But basically, yeah, sure: bad things happened, rules might have been violated, market safeguards were shown to be less robust than had previously been thought, it is altogether fitting and proper that someone look into it. Or a lot of someones I guess.
Still the stories carry a whiff of looking for the keys under the lamppost: Read more »
Today U.S. prosecutors charged former JPMorgan CIO traders Javier Martin-Artajo and Julien Grout with various crimes for mis-marking the London Whale structured credit portfolio positions. The complaints are here and here and reading them you get the strong sense that Bruno Iksil, the Whale himself, was the hero of the whole saga. Oh, sure, he built a colossal portfolio of what turned out to be massively money-losing speculative trades, and yes, he did sit by and watch as his boss Martin-Artajo and his underling Grout conspired to mis-mark that portfolio to disguise hundreds of millions of dollars of losses, but: it made him angry.1 So that’s something? Anyway, he is not being charged and is cooperating with authorities, and I guess one benefit of cooperating, in addition to the not prison, is that you come across pretty well in the complaints.
Meanwhile Martin-Artajo and Grout were not pure of heart, per the complaints; they conspired to mis-mark the book to, in Martin-Artajo’s case, make sure that their bosses didn’t take it away from him,2 and in Grout’s case, I dunno, to do what Martin-Artajo told him to do I guess. The dynamics of this terrible terrible team are a bit unclear. From the emails and recorded calls Martin-Artajo seems like the sort of guy you would not want to work with if you were law-abiding and massively money-losing; he spent a lot of time yelling at Iksil for his conscience.3 Read more »
UBS is selling its over-the-counter commodity derivatives portfolio to JPMorgan, prompting John Carney to say this:
Here’s a good rule of thumb. When one bank buys a business from another bank, it’s almost always a case of regulatory arbitrage. It’s never really because of synergies or managerial talent or whatever other hokum the media relations churn out to their willing dupes in the press. It’s just about one bank being better able to take advantage of the rules.
So even though the rationale for JPMorgan Chase buying the over-the-counter commodities derivatives business of UBS remains mysterious, you can safely surmise this is regulatory arbitrage. Most likely, it’s got to do with capital requirements.
Umm maybe? I don’t know, this question seems a little over-determined; the thing is that pretty much everyone thinks that (1) JPMorgan is pretty good at running an investment bank, the occasional hiccup aside, and that (2) UBS is pretty crap at doing so. So are US regulators relatively more comfortable with JPM managing this portfolio than Swiss regulators are with UBS doing so? Sure, probably, but probably so are the respective shareholders, and counterparties, and senior managements, and anyone else you might ask. Really moving any portfolio of anything from UBS to JPMorgan is probably Pareto optimal.
The Federal Energy Regulatory Commission fined JPMorgan $410mm today and you can see why JPMorgan would be okay with that. The details are in this marvelously complicated FERC order and settlement agreement,1 but the outlines of the story are simple. FERC built a terrible box, and the box had some buttons that were labeled “push here for money,” and JPMorgan pushed them and got money. You can understand the category mistake very easily:
- FERC thought the box was for generating electricity at market prices but with a robust backup system to ensure reliable supply, and
- JPMorgan thought the box was for dispensing money.
It’s a perfectly understandable mistake to make if you have spent your career building and operating boxes that dispense money, as JPMorgan global commodities head Blythe Masters has. What else could the box be for?
I suppose we should talk about how the box worked, because this is that sort of blog. Read more »
One of the pleasures of every JPMorgan quarterly earnings call is hearing Jamie Dimon’s, and now Marianne Lake’s, authoritative-sounding pronouncements on proposed regulations. You sometimes get the sense that regulations can’t be adopted without Dimon’s approval, so his views on these calls provide some sort of indicator of which of the proposals might actually happen. Plus, general amusing orneriness.
So how’d everyone do? Well, they think Nouveau Glass-Steagall is pretty silly, for one thing: in response to an analyst question about it, Lake said “we don’t spend much time thinking about it.”1 Oof! Get outta here with your Glass-Steagalls.
But the theme of the call was mostly “could you tell us more about your leverage ratio?” Here, JPMorgan is not so fond of the new Basel III leverage ratio proposals. The earnings deck walks through how JPMorgan will comply with the new U.S. leverage ratio rules, but it does not do any math on the effects of the new Basel proposals to do creepy things like disallow derivatives collateral netting. When asked to quantify the leverage under those proposals, Lake and Dimon declined, saying that there are “fundamental problems” with those proposals. So they have chosen to ignore them and, presumably, they will go away. Read more »