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Title: JPMorgan's Big Surprise: We Lost $2 Billion in 'Egregious Mistakes'
Source:
Bloomberg
URL Source: http://www.bloomberg.com/news/print ... suffered-significant-loss.html
Published: May 10, 2012
Author: Dawn Kopecki and Michael J. Moore
Post Date: 2012-05-10 19:19:10 by Brian S
Keywords: None
Views: 2024
Comments: 5
JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said the firm lost about $2 billion on synthetic credit securities after an “egregious’” failure in its chief investment office, which the bank says focuses on hedging. “This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed,” the New York-based company said today in a quarterly securities filing. JPMorgan declined 5.5 percent to $38.50 in extended trading at 5:55 p.m. in New York. The chief investment office has been transformed in recent years under Dimon into a unit that makes bigger and riskier speculative bets with the bank’s money, according to five former employees, Bloomberg News reported April 13. Some bets were so big that JPMorgan probably couldn’t unwind them without losing money or roiling financial markets, the former executives said. Bloomberg News first reported April 5 that London-based trader Bruno Iksil had amassed positions linked to the financial health of corporations that were so large he was driving price moves in the $10 trillion market. After the Bloomberg report, Dimon on a conference call said the news coverage was “a complete tempest in a teapot.” The losses disclosed today were “a little bit to do with the article in the press,” Dimon said, without specifying who in the bank oversaw the trades. “I also think we acted a little bit too defensively” to the reports. Synthetic credit products are derivatives that generate gains and losses tied to credit performance without the owner buying or selling actual debt. The losses occurred as the company sought to unwind a portfolio of the instruments used to hedge JPMorgan’s credit exposure. “In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored,” Dimon said. JPMorgan said the losses were partly offset by gains from the sales from its available-for-sale credit portfolio, resulting in a net loss for the firm’s corporate division, which includes the CIO, of about $800 million after taxes. The losses could widen or narrow during the rest of the quarter, Dimon said. The bank is “repositioning” the synthetic credit portfolio, and the CIO “may hold certain of its current synthetic credit positions for the longer term,” the firm said.
‘Flawed, Complex’
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#2. To: Brian S (#0)
None of ENRON's accounting was ruled illegal. And JPMorgan invented Enron's accounting. Just the tip of a gigantic inverted pyramid.
libertysflame.com/cgi-bin...rtNum=28205&Disp=784#C784
#4. To: All (#3)
What really matters is JPM's stockholders' equity, which contains all the capital that JPM stockholders own free and clear, both funds that they have contributed and total profits earned and retained in the entire long and distinguished corporate histories of JP Morgan and Chase Manhattan. After the liabilities are subtracted from the assets, JPM shareholders only own roughly $43b (exactly $42.735b) in equity. Ominously, this relatively small equity capital balance is supporting a crushing inverted derivatives pyramid weighing a colossal $30,434b! $30,434b of notional value derivatives controlled by JPM divided by its shareholders' equity of $42.735b (note this is a decimal-point in the equity number, NOT a comma as in the derivatives number) yields a simply unfathomable implied leverage of derivatives to equity of 712 times! "Holy cow!" as they say in the American Midwest. Every single dollar of hard-won JPM equity ever contributed or retained is supporting a breathtaking $712 in derivatives side-bets! 712x implied leverage!! Old John Pierpont Morgan (1837-1913) is probably rolling-over in his grave, as he was a far more conservative financier, industrialist, and deal-maker, not a pure financial speculator or hedge fund manager!" This implied derivatives leverage on equity has increased dramatically since this article was written in 2001. At least 10X greater now....;}
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#3. To: All (#2)
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