http://dealbook.nytimes.com/2012/05/16/jpmorgans-trading-loss-is-said-to-rise-at-least-50/?partner=yahoofinance
( JPM now concedes it may have lost another billion in four trading days.. )
Tim Boyle/Bloomberg NewsJamie Dimon, chief executive of JPMorgan Chase.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/5/11_Rick_Rule_-_This_Can_Bring_Down_the_Entire_Financial_System.html
( As per the link above , Rick Rule of Sprott Asset Management notes JPM could have 100 billion unhedged CDS that they have sold or provided - which is just a tad more than a the 2 billion loss discussed to date . )
http://dealbook.nytimes.com/2012/05/15/f-b-i-inquiry-adds-to-jpmorgans-woes/?partner=yahoofinance
http://www.zerohedge.com/news/pain-over-bruno-iksil
Submitted by Tyler Durden on 05/15/2012 21:59 -0400
( JPM now concedes it may have lost another billion in four trading days.. )
JPMorgan’s Trading Loss Is Said to Rise at Least 50%
BY NELSON D. SCHWARTZ AND JESSICA SILVER-GREENBERGTim Boyle/Bloomberg NewsJamie Dimon, chief executive of JPMorgan Chase.
The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank’s initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses.
When Jamie Dimon, JPMorgan’s chief executive, announced the losses last Thursday, he indicated they could double within the next few quarters. But that process has been compressed into four trading days as hedge funds and other investors take advantage of JPMorgan’s distress, fueling faster deterioration in the underlying credit market positions held by the bank.
A spokeswoman for the bank declined to comment, although Mr. Dimon has said the total paper trading losses will be volatile depending on day-to-day market fluctuations.
The Federal Reserve is examining the scope of the growing losses and the original bet, along with whether JPMorgan’s chief investment office took risks that were inappropriate for a federally insured depository institution, according to several people with knowledge of the examination. They spoke on the condition of anonymity because the investigation is still under way.
The overall health of the bank remains strong, even with the additional losses, and JPMorgan has been able to increase its stock dividend faster than its rivals because of stronger earnings and a more solid capital buffer.
Still, the huge trading losses rocked Wall Street and reignited the debate over how tightly giant financial institutions should be regulated. Bank analysts say that while the bank’s stability is not threatened, if the losses continue to mount, the outlook for the bank’s dividend will grow uncertain.
The bank’s leadership has discussed the impact of the losses on future earnings, although a dividend cut remains highly unlikely for now. In March, the company raised the quarterly dividend by 5 cents, to 30 cents, which will cost the bank about $190 million more this quarter.
A spokeswoman for the bank said a dividend cut has not been discussed internally.
At the bank’s annual meeting in Tampa, Fla., on Tuesday, Mr. Dimon did not definitively rule out cutting the dividend, although he said that he “hoped” it would not be cut.
John Lackey, a shareholder from Richmond, Va., who attended the meeting precisely to ask about the dividend, was not reassured. “That wasn’t a very clear answer,” he said of Mr. Dimon’s response. “I expect that shareholders are going to suffer because of this.”
Analysts expect the bank to earn $4 billion in the second quarter, factoring in the original estimated loss of $2 billion. Even if the additional trading losses were to double, the bank could still earn a profit of $2 billion.
And many analysts and investors remain optimistic about the bank’s long-term prospects.
Glenn Schorr, a widely followed analyst with Nomura, reiterated on Wednesday his buy rating on JPMorgan shares, which are down more than 10 percent since the trading loss became public last week.
What’s more, the chief investment office earned more than $5 billion in the last three years, which leaves it ahead over all, even given the added red ink.
But the underlying problem is that while these sharp swings are expected at a big hedge fund, they should not be occurring at a bank whose deposits are government-backed and which has access to ultralow cost capital from the Federal Reserve, experts said.
“JPMorgan Chase has a big hedge fund inside a commercial bank,” said Mark Williams, a professor of finance at Boston University, who also served as a Federal Reserve bank examiner. “They should be taking in deposits and making loans, not taking large speculative bets.”
Not long after Mr. Dimon’s announcement of a dividend increase in March, the notorious bet by JPMorgan’s chief investment office began to fall apart.
Traders at the unit’s London desk and elsewhere are now frantically trying to defuse the huge bet that was built up over years, but started generating erratic returns in late March. After a brief pause, the losses began to mount again in late April, prompting Mr. Dimon’s announcement on May 10.
Beginning on Friday, the same trends that had been causing the losses for six weeks accelerated, since traders on the opposite side of the bet knew the bank was under pressure to unwind the losing trade and could not double down in any way.
Another issue is that the trader who executed the complex wager, Bruno Iksil, is no longer on the trading desk. Nicknamed the London Whale, Mr. Iksil had a firm grasp on the trade — knowledge that is hard to replace, even though his anticipated departure is seen as sign of the bank’s taking responsibility for the debacle.
“They were caught short,” said one experienced credit trader who spoke on the condition of anonymity because the situation is still fluid. The market player, who does not stand to gain from JPMorgan’s losses and is not involved in the trade, added, “this is a very hard trade to get out of because it’s so big.”
He estimated that the initial loss of just over $2 billion was caused by a move of a quarter percentage point, or 25 basis points, on a portfolio with a notional value of $150 billion to $200 billion — in other words, the total value of the contracts traded, not JPMorgan’s exposure. In the four trading days since Mr. Dimon’s disclosure, the market has moved at least 15 to 20 basis points more against JPMorgan, he said.
The overall losses are not directly proportional to the move in basis points because of the complexity of the trade. Many of the positions are highly illiquid, making them difficult to value for regulators and the bank itself.
In its simplest form, traders said, the complex position assembled by the bank included a bullish bet on an index of investment-grade corporate debt, later paired with a bearish bet on high-yield securities, achieved by selling insurance contracts known as credit-default swaps.
A big move in the interest rate spread between the investment grade securities and risk-free government bonds in recent months hurt the first part of the bet, and was not offset by equally large moves in the price of the insurance on the high yield bonds.
As the credit yield curve steepened, the losses piled up on the corporate grade index, overwhelming gains elsewhere on the trades. Making matters worse, there was a mismatch between the expiration of different instruments within the trade, increasing losses.
The additional losses represent a worsening of what is already the most embarrassing misstep for JPMorgan since Mr. Dimon became chief executive in 2005. No one has blamed Mr. Dimon for the trade, which was under the oversight of the head of the chief investment office, Ina Drew, but he has repeatedly apologized, calling it “stupid” and “sloppy.”
Ms. Drew resigned Monday and more departures are anticipated.
and....
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/5/11_Rick_Rule_-_This_Can_Bring_Down_the_Entire_Financial_System.html
( As per the link above , Rick Rule of Sprott Asset Management notes JPM could have 100 billion unhedged CDS that they have sold or provided - which is just a tad more than a the 2 billion loss discussed to date . )
http://dealbook.nytimes.com/2012/05/15/f-b-i-inquiry-adds-to-jpmorgans-woes/?partner=yahoofinance
F.B.I. Inquiry Adds to JPMorgan’s Woes
BY JESSICA SILVER-GREENBERG AND BEN PROTESS
Investors and federal investigators turned up the heat on JPMorgan Chase on Tuesday, as shareholders called for pay givebacks from executives responsible for a stunning $2 billion trading loss and the Federal Bureau of Investigation opened a preliminary review of the debacle.
The F.B.I. case will examine potential criminal wrongdoing at JPMorgan, according to people briefed on the matter, representing the most serious inquiry to stem from the losses.
The inquiry, which is being led by the F.B.I.’s New York office, will in part scrutinize JPMorgan’s accounting practices and public disclosures about the trades that prompted the loss, the people briefed on the matter said. JPMorgan also recently received questions from federal prosecutors in New York, one person said.
They cautioned that the inquiry was at an early stage and that it was routine for federal authorities to open a case after a big bank disclosed a huge blunder. No one at JPMorgan has been accused of wrongdoing.
While the trading loss is not likely to blow a hole in JPMorgan’s balance sheet, the trades could continue to spill red ink for months, costing the bank several billion dollars.
The more lasting damage could be to the once-stellar reputation of the bank and its chief executive, Jamie Dimon.
News of an F.B.I. investigation came after the bank concluded its annual meeting, held in Tampa, Fla., on Tuesday morning. Shareholders generally showed support for the bank’s leadership at the meeting, but raised questions about the oversight of its embattled leader.
About nine out of 10 shareholders supported Mr. Dimon’s $23 million compensation package and elected management’s nominees to the board. But four out of 10 of them wanted to replace Mr. Dimon as chairman with an independent director. He is both chief executive and chairman.
While the majority of shareholders had voted before the bank’s announcement last Thursday of the bet gone bad, several investors said that the latest trading blunder illuminated the dangers of allowing a chief executive to operate with limited oversight.
“There is an essential and potentially disastrous conflict of interest when the same person shares both jobs,” said Lisa Lindsley, the director of capital strategies at AFSCME Employees Pension Plan, which proposed the independent chairman resolution. She added. “There is clearly not a sufficient check on Mr. Dimon.”
At the meeting Tuesday, a visibly agitated Mr. Dimon, who seemed to race through his opening remarks, said the board ensures that he is operating in the best interest of the company. He pointed to its 11-person operating committee as proof that he does not have undue influence.
Continuing his apologies about the trading loss, Mr. Dimon told investors that the bank had made mistakes, which he called “self inflicted.” Still, investors were not placated. Some seized on Mr. Dimon’s position on the board of the Federal Reserve Bank of New York as even further evidence of the executive’s undue influence.
That concern was initially raised by Elizabeth Warren, the driving force behind creation of the Consumer Financial Protection Bureau, who called Monday for Mr. Dimon to give up his seat on the board of the Fed. Mr. Dimon countered that he had limited influence in that role and could not even vote on the Fed’s chairman.
Adding to the fallout from the trade, New York City’s comptroller, John C. Liu, demanded that the bank “clawback every single dollar possible” from the compensation of executives tainted by the trade, including Ina R. Drew, who oversaw the office that orchestrated the trade and resigned on Monday.
Mr. Dimon said Tuesday that the bank “will do the right thing” and that may include clawbacks.
The bank’s proxy statement says that stock awards can be wiped out or reclaimed if an “employee engages in conduct that causes material financial or reputational harm” to JPMorgan. A senior executive at JPMorgan said Tuesday that it was exceedingly likely that it would clawback compensation from Ms. Drew. She was among the most powerful women on Wall Street, and last year she earned roughly $14 million.
Clawbacks are rare, executive compensation consultants said, although they do happen. UBS said in 2010 that it would take back roughly $321 million in bonus pay that was earmarked to go to traders at the Swiss bank.
The ability to demand clawbacks is part of the Dodd-Frank financial regulatory law, which also mandates that companies give shareholders a nonbinding vote on “say on pay” so that investors can voice their opinions on executive compensation.
So far, shareholders have been reluctant to vote against executive compensation plans. Last year, for example, only 2 percent of compensation plans were voted against, according to ISS Proxy Advisory Services. But in April, Citibank shareholders rebuffed a $15 million pay package for the bank’s chief executive,Vikram S. Pandit.
Mr. Dimon assured shareholders that the bank had no plans to slash its dividend. Just a few months ago, Mr. Dimon, in a bold show of optimism about the bank’s performance announced he would increase dividends.
Shares of JPMorgan rose 1.26 percent on Tuesday, to close at $36.24, still down 11 percent from when the trading debacle was made public Thursday.
The revelation of the F.B.I. inquiry comes after a similar acknowledgment last week that civil regulators at the Securities and Exchange Commission opened an inquiry into JPMorgan’s disclosures and accounting practices.
As media reports surfaced about the chief investment office in early April, Mr. Dimon publicly dismissed the concerns, calling them a “complete tempest in a teapot.” After Mr. Dimon and other senior executives learned more, he sounded a more contrite tone.
Investigators are also examining an accounting measure known as value-at-risk, which the company changed this year.
The federal scrutiny underscores the new reality facing the bank, which has abruptly lost much of its good will in Washington.
“To think it’s possible for the bank to go back to business as usual is ludicrous,” said Mike Mayo, an analyst with Credit Agricole Securities. “The investigations by the regulators will ultimately find out where the weak link was and you can’t simply blame the traders.”
The trading disaster has given critics fresh ammunition against Wall Street hubris and too-big-to-fail banks. While it is unclear whether regulators will tighten theVolcker Rule, which prevents banks from trading with their own money, some lawmakers already are revisiting plans to temper oversight of Wall Street.
On Tuesday, the House agriculture committee postponed a hearing on three bills meant to ease crucial aspects of the Dodd-Frank financial overhaul law. The committee scrapped plans for Thursday to debate and amend legislation introduced as part of a broader effort to rein in Dodd-Frank.
The committee’s chairman, Frank Lucas, Republican of Oklahoma, said the staff “will take the time to gather all relevant information before we proceed to ensure there are no unintended consequences of the legislation that would encourage recklessness in our financial institutions.”
http://www.zerohedge.com/news/pain-over-bruno-iksil
Is The Pain Over For Bruno Iksil?
Today, for the first time since the advent of the JPM prop trading fiasco last Thursday, the IG9-10 Year skew has diverged, dipping from -3 bps to -5 bps as the index remained flattish while the intrinsics widened by about 2 bps. While hardly earth shattering, this move likely means that either JPM's CIO trading desk is playing possum and is no longer unwinding its original pair trade exposure (either because it no longer has anything to unwind, or because it can't take the pain any more and is out of the market entirely), or the hedge fund consortium has had enough of pushing IG 9 wider in hopes that max pain would force JPM to cover its synthetic leg. As a reminder, this is where last Thursday we said the time to push JPM would likely end. As for the question of how much additional P&L loss JPM has sustained from Friday through today is a different matter entirely, and we are confident the next announcement from JPM will come momentarily, coupled with the announcement that Bruno Iksil, the last remnant of the CIO desk, and now having completed his duty of unwinding the trade that brought so much pain for Jamie Dimon, has been retired.
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