Posts tagged 'JPM Whale-Watching Tour'

Unwinding with an invisibility cloak

JPMorgan is continuing to be coy about the management of its Chief Investment Office’s doomed synthetic credit portfolio. The positions lost $4.4bn in the second quarter, bringing the year-to-date loss to $5.8bn. It’s understandable that they don’t want to share more granular details — doing so would put them at a disadvantage in trying to manage the whole thing down.

We know the financial instruments in the portfolio themselves were nothing special. It’s that the whole portfolio of them became too complex and illiquid, in part due to their enormous size. Read more

A back office failure to put right

Or, “More power to the cupcake police”. (Bear with us)

How is pricing within banks, and in markets more generally, policed? Read more

Unwind? What unwind? – Part 2

In our previous post, we outlined our disappointment that the latest DTCC data released on Tuesday night did not seem to reveal any significant reductions in risk positions on major credit derivative indices and tranches. It would appear that JPMorgan hasn’t unwound its trades in a big way, as no especially remarkable movements appear in either the activity or volume data.

The reports last week that suggested JPMorgan had sold “65-70 per cent” of its “London Whale position” cited market sources. This was lent a certain credibility by a pop in activity of $31bn on the Markit CDX.NA.IG.9 — one of the few indices in which JPMorgan has a considerable position. Looking back at the data from the last week (in Part 1) showed that the pop was less remarkable than it seemed. Read more

Unwind? What unwind? – Part 1

FT Alphaville had a serious case of the F5 on Tuesday at 10pm London time, for it was at that hour that last week’s DTCC credit derivatives data was released to the masses.

Here we would be able to see signs of what CNBC had reported last Wednesday: that JPMorgan had sold “65 percent to 70 percent of the so-called London Whale position, a hedging strategy gone so wrong that in early May JPMorgan conceded it had already lost $2 billion.” Read more

Approaching the beach [updated]

CNBC is reporting on Wednesday that JPMorgan has sold a substantial amount of its loss-making synthetic credit portfolio:

JPMorgan Chase has sold off 65 percent to 70 percent of its losing “London Whale” position, which led to a multibillion-dollar trading loss for the bank, CNBC reported on Wednesday. Read more

Where the OCC should have looked

Isn’t it a problem if bank regulators depend, seemingly exclusively, on the banks themselves for information? Weren’t trade information warehouses, such as DTCC’s for credit derivatives, built in part to give regulators a bird’s eye view of markets? If so, why the hell does it sound like they aren’t being used?

JPMorgan management have put their hands up since the announcement of $2bn of losses, effectively saying, ‘yeah, whoops, we totally messed that one up. Buck stops here. We’re looking into preventing that from ever happening again. We’ve learned that no matter how good a division’s past performance, one simply cannot ever be complacent.’ They are taking their (very, very sizable) share of the blame. Read more

Oh, so now it’s a $5bn loss?

Morgan Stanley’s research team came out with a note on Friday, guesstimating that JPMorgan’s losses on the synthetic credit portfolio held by its Chief Investment Office will come to $5bn by the end of the year, which is $2bn more than CEO Jamie Dimon seemed to think they’d come to when the announcement of the losses was first made on May 10.

Here are the analysts on why they don’t believe Dimon’s estimate (emphasis ours): Read more

Tracking trades down

The last twenty-four hours have brought us some interesting insights into the JPMorgan chief investment office’s $2bn loss story. The FT revealed that the CIO has been a huge player in certain structured asset markets. Some surmise that the trading activity from the unit has been so big that if it ceased participation in those markets, it could damage what liquidity there is in them.

There was also a story, this one written by the WSJ, about how CEO Jamie Dimon reacted when the stories about the “London Whale” first surfaced (pun intended). The article described how the positions were then investigated (internally) and the decision taken to delay a regulatory filing until the exact positions were better understood. Read more

The high yield tranche piece

Coverage of the $2bn $3bn loss emanating from JPMorgan’s Chief Investment Office on its synthetic credit portfolio continues a pace, and FT Alphaville’s tour continues too.

The desire to understand what the trade was and the rationale behind it continues to bug us and many others. Interestingly, some of the discussion of late has come full circle. Bloomberg kicked off the London Whale saga on April 6th, and their follow-up on April 9th contained a detail that has now come back into the narrative. This time, though, it’s more than a mere sidenote — more on this in a minute. Read more

Recap and tranche primer

There were small [losses] in the first quarter, but real ones that we talked about the $2 billion were all in the second quarter. And it kind of grew as the quarter went on.

That’s JPMorgan’s chief executive Jamie Dimon, in the conference call arranged after the bank’s 10-Q revealed substantial losses in a synthetic credit portfolio held by its Chief Investment Office. Read more

Two billion dollar ‘hedge’

Trust us, it isn’t easy to lose $2bn in a “synthetic credit portfolio” over five weeks from the beginning of April, as JPMorgan’s Chief Investment Office managed to do. A lot of analysts are scratching their heads wondering just how this feat was accomplished.

One would need a number of ingredients to even get close to pulling this off. A good helping of models that were trusted too much, as it seems the CIO’s value-at-risk (VaR) model was, is a good start. But one needs a bit more than that. Per BloombergRead more

What position transparency?

“Synthetic credit portfolio”. That’s the book where the $2bn in mark-to-market losses took place for JP Morgan, according to an announcement made on Thursday. A result which has now cost them a their AA- rating from Fitch and landed them on negative outlook with S&P, as announced late on Friday.

FT Alphaville has analysed the credit trades that might be in that portfolio, in an attempt to reason through what may have gone on. The fact, however, remains that we know precious little. Why is that? Is this acceptable that after the financial crisis that this can happen to a bank, let alone a systemically important one like JP Morgan? Read more

Too Big To Hedge

Throughout FT Alphaville’s coverage of the credit trades of JP Morgan’s Chief Investment Office, there were two thoughts that kept nagging us. We’d think about them whenever we wrote about the technicals the trades might be creating. One was: could this really happen under CEO Jamie Dimon’s watch? The other was: where the hell are the regulators in all of this?

We’ll get to these questions a bit later, as we would first like to review how the $2bn mark-to-market loss announced on Thursday may have happened… Read more

Shamu in the swimming pool

Hedge funds are not happy.

Don’t everyone run to their defence at once now. Read more

The curve trade

A “tempest in a teapot. That’s how JP Morgan CEO Jamie Dimon described the fuss caused by the bank’s Chief Investment Office apparently entering into large credit trades. It may well be teapot-sized, for him. The point for some hedge funds is that even if it was a swimming pool, you’d feel a bit cramped if Shamu joined you for your morning laps.

Which is to say that, for those actually trading credit indices, the thing that is such a big deal is whether the trading behaviour of JP Morgan’s CIO distorted the market. Less of a big deal is whether JP Morgan is going to land itself in trouble if the trades aren’t actually hedges but proprietary bets, hence go against the Volcker Rule. Read more

Thar she blows!

Whale-watching in the credit default swap market has become something of a pastime for pundits and market participants alike.

For the uninitiated, the short version of this story is that many believe that a trader (aka “The London Whale”, or “Voldemort”) in JP Morgan’s Chief Investment Office (CIO) has been amassing such large positions in various credit indices that it is potentially: Read more