Capiche? Read more »
Shut Your Piehole And Listen To Jamie Dimon When He Says That He Is FINISHED With The Losing-Of-$6 Billion-And-Then-Some ConversationBy Bess Levin
- if a majority of shareholders vote in favor of the nonbinding proposal to strip him of his role as chairman of the board, and
- he remains chairman of the board, then
- he’s probably too powerful!
Let’s find out!
Honestly, who cares who cares who cares who cares if JPMorgan’s board has an independent Chairman or just an independent Presiding Director? The board’s job is to keep an eye on Jamie; if it failed to do that then giving it a fancy new title doesn’t seem likely to improve performance. Is it your impression that Jamie Dimon, who apparently rides roughshod over pissant Presiding Directors,1 will nonetheless be meek and subservient when faced with a Chairman?
Discussion about this proposal is confused because some people think that having an independent chairman is a good thing in all circumstances, or at least say they do; CalPERs’s governance czar, for instance, believes that “There’s a fundamental conflict in combining the roles of chairman and C.E.O.” and so CalPERS will vote to split the roles at JPMorgan just as they did last year. Others think that, y’know, it depends on the people. The people here would presumably remain the same though there’s some rumbling that Dimon would take his toys and go home if he couldn’t be chairman too.
Outside of CalPERS, though, the universal-good-governance theory doesn’t seem to move anyone much. Here, if you’re interested, are JPMorgan’s top 20 shareholders: Read more »
Here’s a good Sonic Charmer post about how JPMorgan could have prevented the London Whale loss by imposing a liquidity provision on the Whale’s desk:
Liquidity provision means: ‘the more illiquid the stuff you’re trading, the more rainy-day buffer we’re going to withhold from your P&L’. And since one way a thing becomes illiquid is ‘you’re dominating the market already’, you inevitably make it nonlinear, like a progressive income tax: No (extra) liquidity provision on the first (say) 100mm you own, half a point on the next (say) 400mm, a point on the next 500mm, 2 points on the next 1000mm, etc etc. (specific #s depend on the product). Problem solved. In fact, it’s genuinely weird and dumb if they didn’t have such a thing.
The London Whale’s problem (one of them) was that he traded so much of a particular thing that he basically became the market in it. That means among other things that even if on paper “The Price” of what he owned was X there would have been no way for him to sell the position for X. A liquidity provision is a rough and dirty way of acknowledging this fact.
This suggestion isn’t a matter of GAAP accounting: JPMorgan wouldn’t report its asset values, or its revenues, net of this liquidity provision. It’s just an internal bookkeeping mechanism: his bosses informing the Whale that, for purposes of calculating his P&L and, thus, his comp, they would take the GAAP value of the things he had and subtract a semi-arbitrary number for their own protection.
It is weird and dumb that they didn’t do this although you can sort of guess why: the Whale portfolio started very small, and by the time it got big the Whale was both profitable and a (mostly imaginary) tail risk hedge, so it would have been hard for a risk manager to take a semi-punitive step to rein in his risk-taking. “Just tell the Whale to take less risk” does in hindsight seem like a sensible suggestion, but I suppose if he’d made $6 billion it wouldn’t.
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 »
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 »
How should one read JPMorgan’s Whale Report? I suppose “not” is an acceptable answer; the Whale’s credit derivatives losses at JPMorgan’s Chief Investment Office are old news by now, though perhaps his bones point us to the future. One way to read it is as a depressing story about measurement. There were some people and whales, and there was a pot of stuff, and the people and whales sat around looking at the stuff and asking themselves, and each other, “what is up with that stuff?” The stuff was in some important ways unknowable: you could list what the stuff was, if you had a big enough piece of paper, but it was hard to get a handle on what it would do. But that was their job. And the way you normally get such a handle, at a bank, is with a number, or numbers, and so everyone grasped at a number.
The problems were (1) the numbers sort of sucked and (2) everyone used a different number. Here I drew you a picture:1
Everyone tried to understand the pool of stuff through one or two or three numbers, and everyone failed dismally through some combination of myopia and the fact that each of those numbers was sort of horrible or tampered or both, each in its own special way. Starting with:
VaR: Value-at-risk is the #1 thing that people talk about when they want to talk about measuring risk. To the point that, if you want to be all “don’t look at one number to measure risk, you jerks,” VaR is the one number you tell the jerks not to look at. Read more »
JPMorgan’s Regulators Plan To Ask Some Pointed Questions About … Sorry, Was It The London Quail? Something Like That.By Matt Levine
I didn’t really understand this morning’s Journal headline – “Regulatory ‘Whale’ Hunt Advances” – since the whale in question, JPMorgan’s Bruno Iksil, has been caught, harpooned, killed, flensed, picked clean by sharks, and his skeleton mounted in the American Museum of Unfortunate Trades. So the OCC’s hunt is … somewhat late no?
The Office of the Comptroller of the Currency, led by Comptroller Thomas Curry, is preparing to take a formal action demanding that J.P. Morgan remedy the lapses in risk controls that allowed a small group of London-based traders to rack up losses of more than $6 billion this year, according to people familiar with the company’s discussions with regulators.
The OCC, the primary regulator for J.P. Morgan’s deposit-taking bank, isn’t expected to levy a fine, at least initially.
I submit to you that:
- JPMorgan has at the very least talked a good game about remedying the lapses in risk controls that led to the Whale’s losses, insofar as it’s wound down the trade, fired everyone involved, appointed new risk managers, changed the models, moved the relevant portfolio out of the division that used to house it, and otherwise done everything in its power to make its chief investment office a no-cetaceans zone, and
- If the OCC disagrees, and thinks that JPMorgan hasn’t taken commercially reasonable risk-management steps to remedy the lapses that led it whaleward, then there may be bigger problems than can be fixed by a notice saying “oh hey you might want to look into that.”
Anyway. Yesterday the OCC also released its Semiannual Risk Perspective for Fall 2012; December 20 is technically fall but the document has data through June 30 so that too seems a bit behind the times. The OCC: your time-shifted banking overseer.
But it’s an interesting, and broadly encouraging, read in a circle-of-life way. Things are, or were in June, pretty good, or at least improving, credit-wise:1 Read more »