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 […]
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 at a fire, based on his experience, is probably at least a little bit underwhelmed by the task.
From Kate Kelly’s Street Fighters:
Matt Zames had been down this road before. He had started his career at Long-Term Capital Management in the winter of 1994, shortly after college. There he witnessed firsthand what could happen when a bunch of shortsighted executives didn’t manage their risk properly…By the time he reached the sixth floor it was after midnight. His team was huddled with a group of Bear managers in one of the conference rooms. Zames had one question for the Bear team: How much cash and collateral did it have on hand?…Zames shook his head. “This isn’t going to be necessary,” he told them. “This whole thing is fucked.”
Guy had a front-row seat for LTCM and Bear’s implosion and now he’s being asked to do what, exactly? Clean up a minor mess at a *solvent* bank? It’s almost a little insulting, actually. Call him when you’ve got SOMETHING REAL.
“Manageable” but “raises questions.”
Fitch Ratings has downgraded JPMorgan Chase & Co.’s (JPM) Long-term Issuer Default Rating (IDR) to ‘A+’ from ‘AA-‘ and its Short-term IDR to ‘F1′ from ‘F1+’. Fitch has placed all parent and subsidiary long-term ratings on Rating Watch Negative. Fitch has also downgraded JPM’s viability rating (VR) to ‘a+’ from ‘aa-‘ and placed it on Rating Watch Negative. In addition, Fitch affirmed JPM’s ‘1’ support rating and ‘A’ support rating floor. The rating actions follow JPM’s disclosure yesterday of a $2 billion trading loss on its synthetic credit positions in its Chief Investment Office (CIO). The positions were intended to hedge JPM’s overall credit exposure, particularly during periods of credit stress.
Fitch views the size of loss as manageable. That said, the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity. It also raises questions regarding JPM’s risk appetite, risk management framework, practices and oversight; all key credit factors. Fitch believes the potential reputational risk and risk governance issues raised at JPM are no longer consistent with an ‘AA-‘ rating.
Fitch Cuts JPMorgan Ratings [Reuters]
In case that was unclear. Also, no more “surprises” like you know what again, please.
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 […]
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 […]
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 […]
Do you think that Bruno Iksil, when he woke up in Paris on Friday looking forward to trading from home in his black jeans, expected to become an international celebrity? The evidence suggests not. You may remember Iksil – possibly under other names like “Voldemort” or “the London Whale™” as the JPMorgan chief investment office trader who has sold protection on $100bn of notional of a CDX investment grade index to … hedge … JPMorgan’s massive short position in credit … or … something?* Anyway a lot of people are mad at him because that’s just too much protection to sell on that index and so they are complaining to Bloomberg and the Journal about how he is manipulating the market and also taking huge proprietary risks with JPMorgan capital that should obvs be regulated out of existence.
This is weird in a lot of ways but one of them is that you can distill a lot of the Volcker-Rule complaints into “my God, you’re telling me that JPMorgan is exposed to $100bn of credit risk on investment-grade debt issued by a diverse mix of 121 U.S. companies!?” No! JPMorgan is exposed to something like $750bn of credit risk on debt issued by a diverse mix of companies. Some of it’s non-US. Some of it’s not even investment grade. And that’s just in its loan book.** Is writing $100bn of protection on the CDX.IG.NA.9 a terrible risk to take with investor and depositor and government-backstop money? Well, define “terrible risk.” It’s certainly less risky than operating the rest of JPMorgan.***