“And I want you to know the London Whale issue is dead,” Jamie Dimon recently told a bunch of school children. “The Whale has been harpooned. Dessicated. Cremated…I am going to bury its ashes all over.” [NYM]
JPMorgan can’t outrun the ripples from its multibillion-dollar “London Whale” trading blunder. The largest U.S. bank admitted Thursday in a federal filing that it pushed back a plan to resume share buybacks, scaled back several key measures of capital at the request of regulators and lost money on 28 trading days in the second quarter. The developments came as the New York company tried to unwind a series of problematic positions taken by a trader in the bank’s Chief Investment Office nicknamed the “London Whale” for his outsize market bets. [WSJ]
When the London Whale thing came out, JPMorgan made one sort of clever attempt to minimize it by saying this:
Since March 31, 2012, CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed. The losses in CIO’s synthetic credit portfolio have been partially offset by realized gains from sales, predominantly of credit-related positions, in CIO’s AFS [available-for-sale] securities portfolio. As of March 31, 2012, the value of CIO’s total AFS securities portfolio exceeded its cost by approximately $8 billion. Since then, this portfolio (inclusive of the realized gains in the second quarter to date) has appreciated in value.
What did this mean? Well, I think it roughly meant what it said, which is that as if March 31, JPMorgan’s Chief Investment Office had about $375bn worth of bonds for which it had paid about $367bn, and that after March 31 (1) that portfolio of bonds increased in value to at least $375,000,000,001 and (2) JPMorgan had sold at least some of those bonds at a profit. But one nice thing about it is that, if you squinted, you could read it as “our hedge decreased in value, yes (and by $2bn), but that’s because the underlying portfolio increased in value (by $8bn), so net-net we’re way ahead, and it was a hedge, and whaddarya gonna do, hedges go down when things-hedged go up, that’s life.” That turned out to be an entirely wrong reading but hey they tried!
Reuters moved that story forward a bit with this kind of interesting parsing of Jamie Dimon’s words, including particularly the statement that JPMorgan had realized $1bn of gains on the CIO portfolio of available-for-sale securities between the end of the first quarter and the beginning of that super-awkward whale-confession conference call. Read more »
This is sort of a strange footnote to the London Whale: one of the hedge funds that made money feasting off his carcass was run by JPMorgan*:
Even as a trader for JPMorgan in London was selling piles of insurance on corporate debt, figuring that the economy was on the upswing, a mutual fund elsewhere at the bank was taking the other side of the bet. …
But perhaps one of the most surprising takers of the JPMorgan trade was a mutual fund run out of a completely different part of the bank. The bank’s Strategic Income Opportunities Fund, which holds about $13 billion in client money, owns about $380 million worth of insurance identical to the kind the “London whale” was selling, according to regulatory filings and people with knowledge of the trade. It is unclear how much the fund made.
This is … not surprising. Some people want to sell CDS, some people want to buy it. That’s how there’s a market. And when you’re as big and interconnected as JPMorgan, it’s not surprising that the market often crosses between bits of yourself. That is, it’s sort of silly to think of JPMorgan as a market participant; it is rather a nexus of many many market participants. Some of those participants are “JPMorgan,” in that they’re interested in the performance of JPMorgan as an entity; others of them are “clients” in the sense that they are buying securities from JPMorgan or having their assets managed by JPMorgan in some separate or mutual-fundy way; but to think of them all as JPMorgan is silly.
But the conclusions from this unremarkable fact are sort of interesting: Read more »
New JPMorgan CIO Doesn’t Get Out Of Bed For Less Than A Great Depression-Level Financial CatastropheBy Bess Levin
Earlier today, it was announced that Matt Zames had been named JPMorgan’s new Chief Investment Officer, to replace Ina Drew, the woman who supervised the trader responsible for the firm’s whale of a loss and was dismissed over the weekend. Previously, Zames served as the firm’s head of fixed income and while he may be happy to be seen by senior management as a guy capable of putting out a fire, based on his experience, is probably at least a little bit underwhelmed by the task. Read more »
“Manageable” but “raises questions.” Read more »
JPMorgan Chief Risk Officer: “I want to reiterate the critical role that we play at J.P. Morgan Chase”By Bess Levin
In case that was unclear. Also, no more “surprises” like you know what again, please. Read more »
BURLINGTON, Vt., May 11 – U.S. Sen. Bernie Sanders (I-Vt.) issued the following statement today after J.P. Morgan Chase revealed a $2 billion loss: “The debacle at J.P. Morgan Chase reaffirms my view that the largest six banks in this country, including J.P. Morgan Chase, which have assets equivalent to two-thirds of our GDP, must be broken up. This is important in order to bring more competition into the financial marketplace and to prevent another ‘too-big-to-fail’ bailout. “At a time when 23 million Americans are either unemployed or underemployed, huge financial institutions should not be involved in ‘making wagers or high-stake bets.’ They should be investing in the productive economy creating jobs and improving our standard of living.”
Jamie Dimon just did a conference call in which he mentioned something called the “Dimon Principle,” but he did not define it, so I will propose a definition, which is: If you are going to have a Slytherin alumnus running a $375bn book full of snakes and CDX and TIPS (??) and things, and someone notices and the press starts lobbing in guesses about it, and Congress starts fretting about it, and you say things like “this is a tempest in a teapot,” you have to NOT LOSE TWO BILLION DOLLARS ON IT. From JPMorgan’s just-filed Q: Read more »
I for one am pleased that the London Whale cannot stay out of the news despite all of JPMorgan’s best efforts to say that he’s NBD. His travels through the world’s oceans are delightful and instructive, and Mr. Whale, if you’re reading this and ever come to these shores, I’d love to buy you a drink or some plankton. On that note: lo these many hours ago I said:
Whaledemort has received a lot of Volcker-related attention for reasons that are … well, that have to do with the fact that the Volcker Rule is among other things a free-floating reason to get angry at anything a bank does that you don’t like and/or understand. But it is true that JPMorgan and others really do want a very broad portfolio hedging approach to be recognized by the Volcker Rule. … I tend to be down for that – basically I’d argue that the core function of the financial system is to hedge a bunch of risks with a bunch of historically correlated but not precisely offsetting other risks – but it makes lots of people kind of nervous because when I say “portfolio hedging” you hear “just taking a bunch of crazy risks and pretending it’s a hedge.”