A lot of people think you can just throw a bunch of chaos into a situation and walk away. That is not the case. The most you’re going to get outta that is mayhem. Good disaster, like really muah [kisses fingers], should be catastrophic and that, my friends, takes preparation and patience.
In the case of the synthetic credit portfolio of JPMorgan’s CIO, they had a good three months to build positions that would subsequently cause billions of dollars of losses. Our previous post outlined how, according to the bank’s Task Force Report, the CIO was going to unwind profitable high yield shorts at the beginning of 2012. Instead, the unit ended up building those positions further, along with long positions in the Markit CDX.NA.IG.9 index that were meant to hedge and finance them. Read more
If it’s alright by you, FT Alphaville has a confession to make. This whole London Whale thing, the billions that JPMorgan lost as a result of the actions of its Chief Investment Office primarily in the first quarter of 2012… we kinda made a cottage industry of trying to figure out what the trades were. Not that it was just us, mind you.
Naturally, we had been hoping that we’d finally get some answers when the Task Force Report came out last week. The report has revealed in painful detail how a large, well-respected bank can get so much wrong. There were bad risk management practices, model deficiencies, spreadsheet errors, complacent management and more. But trade details? That’s left for us to piece together from various scraps. Read more
Ever hear the word “innovation” and not be able to stop yourself from wincing? Then you probably work in financial markets.
With the above thought in mind, let’s play a special FT Alphaville edition of Mad Libs.
For those unfamiliar with the game, fill in the below blanks as per the instructions that accompany them. Then read the paragraph below, inserting the words you wrote into the appropriate spaces. Read more
Back up a moment to remember what first brought JP Morgan’s Chief Investment Office to our attention.
It was a bunch of hedge funds complaining to journalists that big trades done by the CIO were causing the Markit CDX.NA.IG.9 credit index to become a lot cheaper than its component parts. Read more
On a scale of meh (0) to tin hats at the ready! (10), FT Alphaville is thinking that the bank-led synthetic securitisation market is currently at about a 3. While worth keeping an eye on, these bespoke deals are still relatively small beans compared to what the market was just before the crisis struck.
Meanwhile, the more standardised side of the corporate credit market, involving trades on credit indices, has seen an impressive growth in risk-taking and activity since the beginning of the year. Read more
What is this a story of? Bloomberg’s headline:
JPMorgan Trader’s Positions Said to Distort Credit Indexes
Credit event auctions determine what the ultimate payout is when credit default swap contracts are triggered by a “credit event” such as bankruptcy.
In a previous post, FT Alphaville explained why such auctions came to exist. Here we discuss why auctions were so important in helping the market grow to astronomical heights, particularly with regards to index trading, a segment that continues to boom. Read more
We’re sure there’s a drinking game in here somewhere, given that Wednesday’s headlines about new records for credit default swap indices will be usable many a time over the coming weeks as the sovereign crisis lurches along. And despite any doubts you may be harbouring about this particular market, it is simply refusing to die. CDS on France have shown a particular resilience and were the most actively traded contracts last week.
But first, some of those records that you’ll be reading about on Wednesday
and Thursday and Friday: Read more
Either that, or credit indices with Western European sovereigns are in the process of dying, depending on one’s views of the consequences of CDS on Greece not triggering (yet) and the naked short ban.
In any case, somewhere in that space between life and death, the market was kicking last week, as these activity figures from MarkitServ/DTCC show. Read more
Generally a much quieter day in the bond and credit markets on Wednesday, after the week’s Italy panic. But we’re still wondering what on earth was moving credit indices during that time.
And what moves. The Markit SovX Western Europe was hugely blowing out by early Tuesday, peaking over 300bps for the first time. As you would expect, both the number of contracts and the notional amount traded (the total amount of protection bought or sold on an entity or index) increased too. The SovX saw 412 trades worth just over $4bn on Tuesday, versus 50/$1.1bn a week earlier. Read more
Seniors have had a hard time of it lately.
They’ve been usurped by a trendier generation, buffeted by changing times. Now Morgan Stanley analysts want you to consider this frail group. They want you to … focus on senior bank debt, of course! Read more