THE PERFECT STORM? The Second Act Of The JPMorgan CIO Fiasco Has Arrived – Mismarking Hundreds Of Billions In Credit Default Swaps

The Second Act Of The JPM CIO Fiasco Has Arrived – Mismarking Hundreds Of Billions In Credit Default Swaps (ZeroHedge, May 30, 2012):

As anyone who has ever traded CDS (or any other OTC, non-exchange traded product) knows, when you have a short risk position, unless compliance tells you to and they rarely do as they have no idea what CDS is most of the time, you always mark the EOD price at the offer, and vice versa, on long risk positions, you always use the bid. That way the P&L always looks better. And for portfolios in which the DV01 is in the hundreds of thousands of dollars (or much, much more if your name was Bruno Iksil), marking at either side of an illiquid market can result in tens if not hundreds of millions of unrealistic profits booked in advance, simply to make one’s book look better, mostly for year end bonus purposes. Apparently JPM’s soon to be fired Bruno Iksil was no stranger to this: as Bloomberg reports, JPM’s CIO unit “was valuing some of its trades at  prices that differed from those of its investment bank, according to people familiar with the matter. The discrepancy between prices used by the chief investment office and JPMorgan’s credit-swaps dealer, the biggest in the U.S., may have obscured by hundreds of millions of dollars the magnitude of the loss before it was disclosed May 10, said one of the people, who asked not to be identified because they aren’t authorized to discuss the matter.I’ve never run into anything like that,” said Sanford C. Bernstein & Co.’s Brad Hintz in New York. “That’s why you have a centralized accounting group that’s comparing marks” between different parts of the bank “to make sure you don’t have any outliers,” said the former chief financial officer of Lehman Brothers Holdings Inc.”

Read moreTHE PERFECT STORM? The Second Act Of The JPMorgan CIO Fiasco Has Arrived – Mismarking Hundreds Of Billions In Credit Default Swaps

JPMorgan’s Potential Trading Loss Could Reach $5 Billion Or More

JPMorgan’s Potential Trading Loss Just Keeps Spiraling Higher (Business Insider, May 20, 2012):

When JPMorgan first announced that its CIO office had blundered into a huge trading loss, the number was pegged at $2 billion, though the company said it could go higher.

Then the loss was reported to be $3 billion.

And now….

$5 billion or more?

From WSJ:

The nation’s largest bank has said publicly that its losses on the trades have surpassed $2 billion, and people familiar with the matter have said they could over time reach $5 billion.

But the losses could be even bigger if the company sells its positions into a market that has turned against its positions, some traders say. Improvements in the markets could slice the bank’s losses.

So the basic issue seems to be: Unwind now and stomach large losses, or wait and hope that things improve.

Either way, it’s clear that JPMorgan has a live and active problem on its hands.

Obama Omits Disclosure On His Two Bank Accounts At JPMorgan

Flashback:

Mitt Romney IS Goldman Sachs!

Mitt Romney Top Contributors Same As Obama’s = More The Same = The End Of America


Obama Omits Disclosure on His Two Bank Accounts at JPMorgan (Occupy Corporatism, May 17. 2012):

Obama recently announced that JPMorgan is “one of the best-managed banks there is” and said Jamie Dimon is “one of the smartest bankers.”

Although Obama mentioned that there is a need for stricter execution of the 2010 reform law, he praised JPMorgan as being one of the most respectable banking establishments in America.

This statement comes as no surprise considering that Obama has a substantial amount of money in two JPMorgan accounts . These accounts are valued at between $2.6 and $8.3 million.

Obama has a Private Client Asset Management checking account which is valued at between $500,000 to $1 million and a regular private checking account with a balance of between $1001 and $15,000.

JPMorgan Chase & Co is one of Obama’s biggest financial contributors . They donated $808,799 to the Obama campaign in 2008.

Regarding the $2 billion loss, Dimon has been nonchalantly claiming: “Hey, everybody makes mistakes — sure, we lost $2 billion, but we’ve still got billions more, and we’ll figure out this one ourselves without the need for any further regulations, thank you.”

Read moreObama Omits Disclosure On His Two Bank Accounts At JPMorgan

Double or Nothing: How Wall Street is Destroying Itself

Double or Nothing: How Wall Street is Destroying Itself (ZeroHedge, May 12, 2012)

There’s nothing controversial about the claim— reported on by Slate, Bloomberg and Harvard Magazine — that in the last 20 years Wall Street has moved away from an investment-led model, to a gambling-led model.

This was exemplified by the failure of LTCM which blew up unsuccessfully making huge interest rate bets for tiny profits, or “picking up nickels in front of a streamroller”, and by Jon Corzine’s MF Global doing practically the same thing with European debt (while at the same time stealing from clients).

As Nassim Taleb described in The Black Swan these kinds of trades — betting large amounts for small frequent profits — is extremely fragile because eventually (and probably sooner in the real world than in a model) losses will happen (and of course if you are betting big, losses will be big). If you are running your business on the basis of leverage, this is especially dangerous, because facing a margin call or a downgrade you may be left in a fire sale to raise collateral.

Read moreDouble or Nothing: How Wall Street is Destroying Itself

Fitch Downgrades JPMorgan Chase To A+, Watch Negative … After A $2 Billion Trading Loss


CEO Jamie Dimon revealed Thursday that JPMorgan had suffered a $2 billion trading loss.

Fitch downgrades JPMorgan Chase (CNN Money, May 11, 2012):

NEW YORK (CNNMoney) — The closing bell brought no relief for JPMorgan Chase on Friday, as a major credit rating agency moved to downgrade its debt almost exactly 24 hours after the bank revealed a $2 billion trading loss.

Fitch Ratings downgraded both JPMorgan’s short-term and long-term debt, with the latter falling to A+ from AA-. The bank, the country’s largest by assets, was also placed on ratings watch negative.

Fitch said it views the $2 billion loss as “manageable” but added that “the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity.”

Fitch Downgrades JPM To A+, Watch Negative (ZeroHedge, May 11, 2012):

Update: now S&P is also one month behind Egan Jones: JPMorgan Chase & Co. Outlook to Negative From Stable by S&P. Only NRSRO in pristinely good standing is Moodys, and then the $2.1 billion margin call will be complete.

So it begins, even as it explains why the Dimon announcement was on Thursday – why to give the rating agencies the benefit of the Friday 5 o’clock bomb of course:

  • JPMorgan Cut by Fitch to A+/F1; L-T IDR on Watch Negative

What was the one notch collateral call again? And when is the Morgan Stanley 3 notch cut coming? Ah yes:

So… another $2.1 billion just got Corzined? Little by little, these are adding up.

Oh and guess who it was that downgraded JPM exactly a month ago. Who else but SEC public enemy number one: Egan-Jones:

Synopsis: Reliance on prop trading and inv bkg income remain. LLR declines (down $1.7B QoQ and $3.87B YoY) offset DVA losses in the investment bank. Wholesale loans were up 23% YoY and 2% QoQ. Middle Mkt, Cmml Term, Corp Client and Cmml Real Estate lending increased by 9%, 2%, 16% and 19% YoY. Middle Mkt and Corp lending was up 2% and 3% QoQ respectively, while Cmml Term, and Cmml Real Estate lending were down 2%, and 9% respectively. Card and consumer loans were down 2% and 5% YoY respectively (down 5% and 1% QoQ respectively). Non accruals are up 14% QoQ due to weakness in JPM’s student loan portfolio. Reserve coverage is good and capital is adequate. We believe JPM will experience further weakness in its retail portfolio due to a softening economy. We are downgrading.

Full Fitch “analysis”:

Read moreFitch Downgrades JPMorgan Chase To A+, Watch Negative … After A $2 Billion Trading Loss

JPMorgan Bankster Chief Jamie Dimon Blasts Governments For ‘Making The Recovery Worse’

You can’t make this stuff up!

Related info:

No.1 Trend Forecaster Gerald Celente: The Entire Financial System Is Collapsing! – This Is FASCISM! (Video, March 26, 2012 )


JPMorgan chief Jamie Dimon blasts governments for ‘making the recovery worse’ (Telegraph, April 5, 2012):

Bad and uncoordinated policies have “made the recovery worse than it otherwise would have been”, Mr Dimon wrote in his annual letter to shareholders. “You cannot prove this in real time, but when economists 20 years from now write a book on the recovery, it may well be entitled ‘It could have been much better’.”

New regulations, he said, have slowed bank lending at “precisely the wrong time”.