JP Morgan $4.2 billion loss in "synthetic" portfolio - conference call at 5:00PM Eastern
jmski52
Posts: 22,822 ✭✭✭✭✭
I missed part of it, but Jamie Dimon is holding a conference call at 5:00PM Eastern to explain $4.2 billion in legal losses due to "mark to market" in some of their portfolios.
Some impacts will be seen in European markets tonight.
I didn't quite hear the reference, but they have some sort of "synthetic" portfolio - loans or some other type of "asset" that has been marked to market.
hmmmmmm.
Some impacts will be seen in European markets tonight.
I didn't quite hear the reference, but they have some sort of "synthetic" portfolio - loans or some other type of "asset" that has been marked to market.
hmmmmmm.
Q: Are You Printing Money? Bernanke: Not Literally
I knew it would happen.
I knew it would happen.
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synthetic credit hedges? hmmmmmm.
I knew it would happen.
Zerohedge
CNBC commentary immediately trying to downplay the size of the loss, but bemoaning what this will do to banking stocks now. Stark realization that JPM isn't the only banking stock with potential mark to market writedowns coming...
I knew it would happen.
The only time it's synthetic is when it's marked to model. Every once in a while something gets marked to market and shtf.
Conference call ended. We shall see what happens to the markets now.
I knew it would happen.
Thats just great now the MF global money has been double vaporized.
<< <i>Ah, now it's a potential $4.2 billion legal loss AND a $1 billion loss in the "synthetic credit" risk management group due to poor execution and poor oversight.
Conference call ended. We shall see what happens to the markets now. >>
How does one even manage $75 TRILLION in contracts? Assuming a nominal $75 MILL per bet, that's 1 MILLION contracts. Who can juggle all that besides a computer?
The general public is not even aware that JPM has 37,000X the leverage of this single $2 BILL failure. Only 36,999 to go. The solution? Add another lock to the door.
Didn't their commodity/derivatives chief Blythe Master just state in an interview that they have all these oversized opaque risk pools adequately hedged?
Or maybe it was just another simple decimal point error. It happens.
<< <i>ANd what wil happen to metals when they re-open in five minutes? >>
Down.
Knowledge is the enemy of fear
More losses to come it looks like here is another zerohedge link that offers more detail with lots of colorful charts
3 billion more?
Are we seeing the beginning of the end for JP morgan? If their hedge positions are under pressure who is to say Goldman isn't doing the squeezing? We know the big banks eat their own kind.
If so, what will happen if they have to liquidate that?
Well they claim to have offsetting positions
There is a bald guy over on CNBC saying JPM is off the lows of the day and it looks like a buy.
<< <i>Is Morgan the one holding the huge fake position in negative silver?
If so, what will happen if they have to liquidate that? >>
We already found out in July 2008 what happens when they doubled their fake - short silver position from 9 yrs of world silver production to 19 yrs .......silver dropped from $20 to $9.
These days they are keeping it between 4-5 yrs so as not to attract attention.
<< <i>
<< <i>Is Morgan the one holding the huge fake position in negative silver?
If so, what will happen if they have to liquidate that? >>
We already found out in July 2008 what happens when they doubled their fake - short silver position.......silver dropped from $20 to $9. >>
I wouldn't mind buying some silver at about twelve bucks this weekend
<< <i>Well they claim to have offsetting positions
There is a bald guy over on CNBC saying JPM is off the lows of the day and it looks like a buy.
CNBC classis spin. Off the lows of the day was used everyday during the financial meltdown and now it's used everyday to polish a turd whenever need be. BTW it's now off the low of the day by $0.01. So I guess it is actually off the new low of the day. Spinidots. MJ
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
Box of 20
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Box of 20
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Reggie middleton finally weighs in on this , I was waiting to hear his take I like almost everything I read from him.
zerohedge
Three whole days later ......
I'm kidding of course he deserves a weekend off now and then I suppose
<< <i>So should I take my 401K $$ out of JP Morgan? >>
Or you can wait for the gov't to control it, jmho.
In the wake of JPM's $2 BILL "trading" or hedging loss blowup it's ironic that once again politicians are saying we need more financial reform. They had most of it on paper several
years ago with the first run of Dodd-Frank but have been dismantling it ever since. Even some of those people asking for more reform are the very ones that helped block it.
The only 2 options are reform or blow up. Pick your poison.
Box of 20
But even more interesting is that the Volker Rule wasn't nearly as strong as Glass-Stegal, but it has been watered down since it was first proposed - and when you read about the Senators who sabotaged it, it's obvious that there was never any intention of restricting the banking industry in the first place.
Volker wanted a 4-page regulation with teeth in it. What we got was 2,300 pages of crap legislation. These politicians are in office for way too long.
I knew it would happen.
Box of 20
<< <i>It is interesting to look up "the Volker Rule" on Wiki. As you read about Dodd-Frank, the first thing you realize is that the banking industry now has another 2,300 pages of crap to "comply" with.
But even more interesting is that the Volker Rule wasn't nearly as strong as Glass-Stegal, but it has been watered down since it was first proposed - and when you read about the Senators who sabotaged it, it's obvious that there was never any intention of restricting the banking industry in the first place.
Volker wanted a 4-page regulation with teeth in it. What we got was 2,300 pages of crap legislation. These politicians are in office for way too long. >>
We need STRICT TERM LIMITS above all else!!!!!!!
I heartily agree Captain. But something tells me that even with 4 yr or 2 yr term limits, votes will still be bartered to lobbyists. It will just happen faster as
elected officials will realize they only have 2 yrs to "get theirs." The changes have to be drastically deeper than just time in office. But that's a start.
Can't we just pass a financial bill that will make it 1992 all over again before Rubin & Co. came to office? All new bills must be 12 words or less to ensure they get read.
A BILL
1. It's 1992 all over again. Cancel any financial legislation newer than that.
end of bill
$2 BILL JPM loss is a just a quick preview of the movie to come
Another view of the risks JPM is taking
Derivatives held by banks:
JPMorgan Chase - $70.1 Trillion
Citibank - $52.1 Trillion
Bank of America - $50.1 Trillion
Goldman Sachs - $44.2 Trillion
Wow!
In God We Trust.... all others pay in Gold and Silver!
Use the Lehman crisis as your template, and then put it on steroids.
There will be massive uncertainty in any contracts relating to debt, bonds, financial contracts, and any business deals in progress.
Nobody will know who owes whom, or how much. The risk spreads on any lending instruments will widen considerably or become completely illiquid, i.e., no transfers of money until money gets "redefined".
You can expect a constant barrage of disinformation and malarky from the politicos, while they scramble to find ways to pick your pocket.
The politicos will appear very nervous - remember Hank Paulson explaining the TARP bailouts? He still reminds me of Daddy Warbucks in Little Orphan Annie, or Uncle Duke in Doonsbury.
With that as a starting point, you can write any number of scenarios and very few of them have happy endings, in my opinion. Confidence will drop like a rock as people begin to realize that they are SOL. I can't write a script for it without going totally into fiction.
I knew it would happen.
Answer: being on the right side of that particular trade and then being able to collect from your counterparty....or from the US govt/taxpayers.
When the "tiny" $5-$8 TRILL MBS derivative's market blew up in 2008 it was small enough to pay out the winners. They even had enough to pay out the
winners in the $62 TRILL Credit Default Swap market. If the entire derivative's market blows up, then it's not likely anyone will win or collect. 80% of those
derivatives held by the top 6 banks are interest rate swaps which have yet to be touched in the carnage of 2007-2012. This is why the FED is
running operation TWIST and keeping rates skewed low. The TBTF banks have $250 TRILL at risk in those IR Swaps. For now, they've played with the
much smaller MBS and CDS swap failures. And so far were able to pay out as approx $35-$40 TRILL notional were unwound. But that's still a drop
in the bucket out of $304 TRILLION total. And even as those trillions were unwound from 2007-2010, it has all since been added back and then some.
Note that the unwinding of Lehman's derivative's book netted them 9 cents on the dollar, a far cry from the typical 95 to 99 cents that most risk models assume
for worst case. The risk models don't include complete failure and the need to unwind all bets in a short period of time. This is why another big bank can't be
allowed to go bust where the bets have to be immediately unwound and paid off. By absorbing a failed bank the risk gets assumed....sort of like playing high stakes
poker when the table gets whittled down from 6 players to 2.
At the end of 2007, Lehman had $738 billion of notional derivatives, a far cry from the $30T to $77T that each of TBTF banks carried at that time. As Jmski52 said,
now put that on steroids by multiplying by 450X. If you want to include foreign banks as well, then multiply Lehman by 1000X. Roid Rage.
Some say just cancel all the bets and start over. No harm, no foul. Thing is, a lot of the banks are carrying these positions as overall "wins" on the books...when they are in
fact losses if marked to market. Failure to account for those "wins" will result in an actual net loss and still cause huge problems. It would be no different than carrying
distressed loans and forecloseable RE properties at full original value. As Sinclair says, whatever doesn't get resolved initially between counterparties will be resolved in court
over the next 10 years. Good time to be a derivative's lawyer.
Did anyone notice how Wells Fargo is left off the derivatives list?
How much does Well Fargo have in derivatives?
In God We Trust.... all others pay in Gold and Silver!
<< <i>A Greek bank run is happening!
Did anyone notice how Wells Fargo is left off the derivatives list?
How much does Well Fargo have in derivatives? >>
Some guest on Bloomberg said Wells Fargo had 30 billion.
<< <i>A Greek bank run is happening!
Did anyone notice how Wells Fargo is left off the derivatives list?
How much does Well Fargo have in derivatives? >>
WFC carries $3.3 TRILL in otc derivatives, placing them in the top 7.
Just ahead of them is HSBC with $4.3 TRILL. But both pale next to the big boyz.
To see why the interest rate curve is where it's at look at the total interest rate contracts held by the top 5.
Office of the Comptroller of the Currency
Derivative's reports are put out quarterly and are fairly easy to read. Toward the end of the charts (pg 28) is where you'll find a detailed breakdown of deriv's by each of the
top 25 banks. Met Life is on the list with $290 BILL.
JPM names new Chief Investment Officer
It's sort of ironic that JPM's new CIO got his start at Long Term Capital Management in 1994 handling Mortgage Backed Securities (derivs). The firm imploded in 1998 during the
Asian currency crisis due to failed currency bets (ie failed derivs). LTCM may have been the birthplace of the current genre of derivative's risk modeling.
<< <i>Nice post RR. >>
Agreed, what would be a good cliff notes / condensed article, link, book, etc... to try and understand the whole scenario better?
Successful card BST transactions with cbcnow, brogurt, gstarling, Bravesfan 007, and rajah 424.
Derivatives defined
Good examples of commonly traded derivatives are the silver ETFs AGQ and it's opposite bet, ZSL.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Derivatives: The $600 Trillion Time Bomb That's Set to Explode
Derivatives defined
Good examples of commonly traded derivatives are the silver ETFs AGQ and it's opposite bet, ZSL. >>
I read the first link and it was downright scary and a little confusing. Thanks for the links.
Successful card BST transactions with cbcnow, brogurt, gstarling, Bravesfan 007, and rajah 424.
<< <i>Derivatives: The $600 Trillion Time Bomb That's Set to Explode
Derivatives defined
Good examples of commonly traded derivatives are the silver ETFs AGQ and it's opposite bet, ZSL. >>
The first link says there are only 4 banks carrying the bulk of the derivatives. But they're leaving out Morgan Stanley which isn't a commerical bank. They have
over $50 TRILL in derivs and make up part of the big 5 (JPM, BoA, Citi, GS, MS). Interesting that BoA has been gaining on JPM and in the near future could take
over the #1 spot as derivative's king ($70 TRILL vs. 68 TRILL). Since that article was penned the currently published number is just over $700 TRILL. While JPM
has actually reduced its overall exposure over the past 4 years, the other 4 have been piling it on like gang busters, especially MS and BoA. While JPM is trying to
shun the spotlight others in the wings are picking up any slack. Lots of team spirit there!
Chris Martenson's latest commentary on Greece, Derivatives and the upcoming QE3
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
When the "hedge" trade went bad
But losses—roughly $100 million or more a day—soon began showing up on the CIO books
Box of 20
<< <i>Saying $5 Billion now. >>
Yes, and hints of maybe $15 BILL or more. Author suggests Dimon came forward to cover their butts in the event this event got much worse.
Current rumors among traders suggest $6-$7 BILL as of today, with JPM not unwinding any of the position yet.
$2 BILL to $70 TRILL......pick a number.....any number.
"Financial institutions such as JPMorgan love to buy derivatives because they are opaque, create fictional income that leads to real bonuses and when (not if) they suffer losses so large that they would cause the bank to fail, they will be bailed out."
William K Black
Bank auditor during the 1980's S&L crisis
As the loss numbers get higher a notch at a time this really seems like a great stock, To short I mean
zerohedge is digging into the stress test results and speculating that it would take a 31.5 billion loss to force them to stop the share buybacks which coincidentally was announced the other day.
zerohedge
Every few days the number gets higher so jump in any time,
<< <i>As the loss numbers get higher a notch at a time this really seems like a great stock, To short I mean
zerohedge is digging into the stress test results and speculating that it would take a 31.5 billion loss to force them to stop the share buybacks which coincidentally was announced the other day.
zerohedge
Every few days the number gets higher so jump in any time, >>
The stock has been beaten down, the news is lousy and the sentiment is to pound Dimon and JPM......but the bank is still one of the strongest large banks around...Sure, it could continue to drop in the short term, but the time to go aggressive on a short has passed, imo. In the longer view I'd take the other side all day long.
As usual time will tell.
When will it END
Some very interesting info in this article that helps to tie a lot of things together. Of note are the major bond rallys of the last couple of years that JW suggests were
caused by a major increase in otc IR Swaps. More importantly, he says that JPMorgan's recent $2 BILL blunder is headed to $31.5 BILL and eventually to hundreds of BILL.
What's behind them is a failure of only a tiny portion of their $57 TRILL IRSwap portfolio This is the first major sighting of the 800 lb. gorilla since it was locked in the closet
a couple of years ago. World-wide there are $900 TRILL in IRSwaps available for high octane fuel. The rapid whipsaws in the TBond chart over the past few years were probably
all based on IR Swap activity. This article is very worthwhile reading. As Red Foxx used to say, "This is the Big One....you hear that Elizabeth?" . This is the first major
crack in the IR Swap structure that has been made known to the general public. CDS and MBS failures were an appetizer. This is the really big one no one wants to discuss.
On a related front, the SEC concluded their 3 yr investigation of Lehman's failure to see if their was any fraud or wrong-doing. They are recommending no legal action be taken
against them. Yup, Lehman was doing it right all along. Nothing to see here, everyone move along. That's 3 yrs of taxpayer money down the drain. No wonder the SEC has
not been available to police other markets for 3 yrs.
I knew it would happen.