Weekend Chillout - Up in Smoke

To celebrate Jamie Dimon's synthetic CDS portfolio bursting into flames, this weekend's chillout is dedicated to all the banksters blowing smoke.

BRICS nations to establish new bank

Mar 29, 2012 by AlJazeeraEnglish

Phone Man says Listen Up

What the heck, if the Silver Teddies can make a come back so can Phone Man.

Why should I buy Silver?

I thought with the partial downfall of JP Morgan I would bring out my cartoon from 2010 from the vault.

JP Morgan's London Whale is now a rotting carcass

I am so loving this unfolding story. I think this is the first time I have ever heard the arrogant prick Jamie Dimon ever admit to a mistake. As reported on this blog on April 17 JP Morgan's "London Whale" was beached and stuck in his trades. Well it seems a few weeks, even in the British sunlight, have resulted in him rotting and the stench has gotten so bad that even Jamie has had to acknowledge that his hedge does stink.

By Scott Reckard, Andrew Tangel and Walter Hamilton, Los Angeles Times May 10, 2012, 5:56 p.m.

Original source

Barely four years after Wall Street's wrong-way bets plunged the world into a financial crisis, JPMorgan Chase & Co. admitted it lost $2 billion from a trading portfolio that was supposed to have helped the bank manage credit risk.

"These were egregious mistakes," said Chief Executive Jamie Dimon, who is considered one of the world's savviest bankers. "We have egg on our face, and we deserve any criticism we get."

The announcement stunned the financial industry, in part because it came from such a highly regarded bank. Dimon had navigated JPMorgan through the crisis in good shape by clamping down on some of the excessive risks that torpedoed rivals.

Dimon told analysts that the bank racked up $2 billion in trading losses during the last six weeks, and that could "easily get worse." He said JPMorgan could suffer an additional $1-billion loss from the portfolio during the second quarter.

"My jaw is on the table," said Nancy Bush of SNL Financial. "I never expected this right now — not in a million years."

The losses stemmed from derivative bets that backfired in the company's Chief Investment Office. This part of the bank was in charge of trading to balance the company's assets and liabilities, although it had been criticized by some analysts for operating more like a hedge fund.

There had been media reports that a single JPMorgan trader in Europe, known in the bond market as "the London whale," was making massive bets that were influencing prices in the $10-trillion market.

Investors bailed out of JPMorgan stock in after-hours trading, a sign it will open sharply lower in New York on Friday. The stock fell 6%, and rivals such as Citigroup Inc., Wells Fargo & Co., andBank of America Corp. also posted modest declines.

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Capital Account - House Republicans seek Independent Investigation of MF Global Bankruptcy

May 10, 2012 by CapitalAccount

The "World's Largest Prop Trading Desk" Just Went Bust

By Tyler Durden on 05/10/2012 17:49 -0400

From ZeroHedge.com

Original Source

A month ago we warned that JPM's CIO office is nothing short of the world's largest prop trading desk. Not only were we right, but what just transpired is just shy of our worst possible prediction. At the end of the day, the real question is why did JPM put in so much money at risk in a prop trade because we can dispense with the bullshit that his was a hedge, right? Simple: because it knew with 100% certainty that if things turn out very, very badly, that the taxpayer, via the Fed, would come to its rescue. Luckily, things turned out only 80% bad. Although it is not over yet: if credit spreads soar, assuming at $200 million DV01, and a 100 bps move, JPM could suffer a $20 billion loss when all is said and done. But hey: at least "net" is not "gross" and we know, just know, that the SEC will get involved and make sure something like this never happens again.

As for what we said before, we will just repost the whole thing as we were, once again, right.
From April13: Why JPM's "Chief Investment Office" Is The World's Largest Prop Trading Desk: Fact And Fiction

For the fiction, we go to JPM's conference call transcript where we had the following disclosures.

• "I did want to talk about the topics in the news around CIO and just take a step back and remind our investors about that activity and performance. We have more liabilities, $1.1 trillion of deposits than we have loans, approximately $720 billion. And we take that differential and we invest it, and that portfolio today is approximately $360 billion. We invest those dollars in high grade, low-risk securities. We have got about $175 billion worth of mortgage securities, we have got government agency securities, high-grade credit and covered bonds, securitized products, municipals, marketable CDs. The vast majority of those are government or government-backed and very high grade in nature. We invest those in order to hedge the interest rate risk of the firm as a function of that liability and asset mismatch."

• "We hedge basis risk, we hedge convexity risk, foreign exchange risk is managed through CIO, and MSR risk. We also do it to generate NII, which we do with that portfolio. The result of all of that is we also need to manage the stress loss associated with that portfolio, and so we have put on positions to manage for a significant stress event in Credit. We have had that position on for many years and the activities that have been reported in the paper are basically part of managing that stress loss position, which we moderate and change over time depending upon our views as to what the risks are for stress loss from credit. And I would add that all those positions are fully transparent to the regulators. They review them, have access to them at any point in time, get the information on those positions on a regular and recurring basis as part of our normalized reporting. All of those positions are put on pursuant to the risk management at the firm-wide level. They are done to keep the Company effectively balanced from a risk standpoint.... " Of course, when you own the regulators, it is not much of an issue... And would it be the same regulators who we have now confirmed don't understand the first thing about markets?

• "All of those decisions are made on a very long-term basis."  Indeed - and the Norway sovereign wealth fund bought Greek bonds investing in "eternity." Only problem is eternity came far faster than expected."

• "The last comment that I would make is that based on, we believe, the spirit of the legislation as well as our reading of the legislation and consistent with this long-term investment philosophy we have in CIO we believe all of this is consistent with what we believe the ultimate outcome will be related to Volcker."

For the facts, we go to Bloomberg again, which was the first to break the Bruno Iksil story, and which exposes without shadow of a doubt why the Chief Investment Office is nothing but the world's largest prop desk. But hey, just as Goldman named it frontrunning service the "Asmymetric Service Initiative" thereby magically not making it a frontrunning service, naming the world's largest prop desk the "Chief Investment Office" makes it no longer be the world's largest prop desk.

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JPMorgan Chase looses $2Billion in Hedge Trimmer Attack

From news.com.au

Original source

JPMORGAN Chase, the largest bank in the US, says it lost $US2 billion ($A2 billion) in a trading portfolio designed to hedge against risks the company takes with its own money.

The company's stock plunged more than six per cent in late electronic trading on Thursday after the loss was announced.

Other bank stocks, including Citigroup and Bank of America suffered heavy losses as well.

"The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought," CEO Jamie Dimon told reporters. "There were many errors, sloppiness and bad judgment."

Dimon spoke in a hastily scheduled conference call with stock analysts. Reporters were allowed to listen.

Partly because of the $US2 billion trading loss, JPMorgan said it expects a loss of $US800 million this quarter for a segment of its business known as corporate and private equity. It had planned on a profit for the segment of $US200 million.

The loss is expected to hurt JPMorgan's overall earnings for the second quarter, which ends on June 30. Dimon apologised for the losses, which he said occurred since the first quarter, which ended March 31.

JPMorgan is trying to unload the portfolio in a "responsible" manner, Dimon said, to minimise the cost to its shareholders.

Among other bank stocks, Citigroup was down 3.2 per cent in after-hours trading, Morgan Stanley was down 2.9 per cent, and Goldman Sachs was down 2.7 per cent.

Read more: http://www.news.com.au/business/companies/jpmorgan-chase-admits-2b-trading-loss/story-fnda1bsz-1226352702722#ixzz1uVxwI1a2

Keiser Report: I Steal, Therefore I Am

May 10, 2012 by RussiaToday