Posts
Is
JP Morgan crashing?
Out
of nowhere, JPM announced 40 minutes ago that it would hold an
unscheduled 5 pm call to coincide with the release of its 10-Q this
comes straight after it became public that one of its subsidiaries
had gone bankrupt.
The
subsidiary
gone belly up was according to Zero hedge the world's largest "prop"
trading desk.
JPM
Crashing After It Convenes Emergency Call To Advise Of "Significant
Mark-To-Market" Losses In Bruno Iksil/CIO Group
10
May, 2012
Out
of nowehere, JPM announced 40 minutes ago that it would hold an
unscheduled 5pm call to coincide with the release of its 10-Q. Rumors
were swirling as to why. The reason is as follows:
- JPMORGAN SAYS CIO UNIT HAS SIGNIFICANT MARK-TO-MARKET LOSSES - "Fortress balance sheet" at least until Bruno Iskil gets done with it.
- JPMORGAN SAYS LOSSES ARE IN SYNTHETIC CREDIT PORTFOLIO - but, but, net is NEVER, EVER Gross.
- JPM WOULD NEED $971M ADDED COLLATERAL IF RATINGS CUT ONE-NOTCH
- JPM WOULD NEED $1.7B ADDED COLLATERAL IF RATINGS CUT 2 NOTCHES - how about three notches?
- JPMORGAN: MAY HOLD SOME SYNTHETIC CREDIT POSITIONS LONG TERM - "Level 3 CDS FTW"
- "As
of March 31, 2012, the value of CIO's total AFS securities portfolio
exceeded its cost by approximately $8 billion"
In Corporate, within the Corporate/Private Equity segment, net income (excluding Private Equity results and litigation expense) for the second quarter is currently estimated to be a loss of approximately $800 million. (Prior guidance for Corporate quarterly net income (excluding Private Equity results, litigation expense and nonrecurring significant items) was approximately $200 million.) Actual second quarter results could be substantially different from the current estimate and will depend on market levels and portfolio actions related to investments held by the Chief Investment Office (CIO), as well as other activities in Corporate during the remainder of the quarter.
Since March 31, 2012, CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed. The losses in CIO's synthetic credit portfolio have been partially offset by realized gains from sales, predominantly of credit-related positions, in CIO's AFS securities portfolio. As of March 31, 2012, the value of CIO's total AFS securities portfolio exceeded its cost by approximately $8 billion. Since then, this portfolio (inclusive of the realized gains in the second quarter to date) has appreciated in value.
The Firm is currently repositioning CIO's synthetic credit portfolio, which it is doing in conjunction with its assessment of the Firm's overall credit exposure. As this repositioning is being effected in a manner designed to maximize economic value, CIO may hold certain of its current synthetic credit positions for the longer term.
Accordingly, net income in Corporate likely will be more volatile in future periods than it has been in the past.
The Firm faces a variety of exposures resulting from repurchase demands and litigation arising out of its various roles as issuer and/or underwriter of mortgage-backed securities (“MBS”) offerings in private-label securitizations. It is possible that these matters will take a number of years to resolve and their ultimate resolution is currently uncertain. Reserves for such matters may need to be increased in the future; however, with the additional litigation reserves taken in the first quarter of 2012, absent any materially adverse developments that could change management’s current views, JPMorgan Chase does not currently anticipate further material additions to its litigation reserves for mortgage-backed securities-related matters over the remainder of the year.All of this is coming form the just filed 10-Q. The full link is here.
Call dial in: (866) 541-2724 in the U.S. and Canada; (706) 634-7246 for international.
Stock now down 5% after hours dragging down ES 7 points with it.
Some segments from the 10-Q as we peruse it:
- A
one-notch downgrade in the Firm’s internal risk ratings for its
entire wholesale loan portfolio could imply an increase in the
Firm’s modeled loss estimates of approximately $2.0 billion.
and just for some clarity on how this occurred. We know the poisitions that Iksil held were in IG9 (more likely to be tranches) but this $2bn loss comes from a tiny 12bps decompression in the index - which means the DV01 must be huge...(as we already knew given the massive rise in net notional that we warned about)...
This is the Investment Grade credit index series 9 - which is the most active tranche-related index and was the index that Iksil had driven massively rich to its fair-value...
Other articles that have come out about this -
JP
Morgan tempest won't blow over
JP
Morgan’s sudden conference call to disclose, and to try to explain,
the $2 billion trading loss that it racked up in only six weeks was
one of the most absorbing bits of live financial theatre since the
2008 crash
John
Gapper, Financial Times
11
May, 2012
Oops.
Dimon isn’t given to mincing his words and he certainly didn’t this time, as I noted on Twitter while listening:
'"Bad strategy, badly executed and poorly monitored" that was intended to hedge against stressed credit markets.'
'Lost $2 billion in six weeks. "We made these positions more complex. This strategy was badly executed and badly monitored".'
"Could easily get worse this quarter and there will also be a lot of volatility next quarter... my general counsel is sitting right here".
Dimon strongly indicated that the bank reacted disastrously to media coverage of Bruno Michel Iksil, a trader, who works in the bank’s chief investment office in London and is known as “the London whale”.
Last month Dimon told the media that coverage of Iksil’s sales of credit default swaps was “a tempest in a teapot” and the structured credit position was being carefully overseen.
What happened next is unclear, but Dimon implied that JP Morgan made a cackhanded attempt to adjust and de-risk its credit book, but instead brought on abrupt and severe losses. It is left with a credit position that will remain extremely volative, probably for the rest of this year.
All in all, if Dimon had wanted to hand ammunition to his opponents, he could not have come up with much more, as he noted at the end:
"It plays right into the hands of a bunch of pundits out there, but that's life. We'll have to deal with it." And that's it. Wow.
This story is definitely not over.
And more...
JPMorgan
Is Tanking After Announcement Of Shock Losses Due To 'Egregious
Mistakes'
10
May, 2012
Shares
of JPMorgan are off over 6% after hours.
The
reason? The
company has shocked the world by
announcing a surprise $2 billion+ trading loss in its synthetic
derivatives portfolio.
In
particular, this paragraph from the company's 10-Q filing is what's
causing people to get nervous:
Since
March 31, 2012, CIO has had significant mark-to-market losses in its
synthetic credit portfolio, and this portfolio has proven to be
riskier, more volatile and less effective as an economic hedge than
the Firm previously believed. The losses in CIO's synthetic credit
portfolio have been partially offset by realized gains from sales,
predominantly of credit-related positions, in CIO's AFS securities
portfolio. As of March 31, 2012, the value of CIO's total AFS
securities portfolio exceeded its cost by approximately $8 billion.
Since then, this portfolio (inclusive of the realized gains in the
second quarter to date) has appreciated in value.
The
company held a conference call starting at 5 PM, where Jamie
Dimon insisted
that this was a pure trading screwup due to the company's own errors
and stupidity and not something fundamental.
Dimon
characterized these losses as a result of sloppiness.
Linette
Lopez and Lisa Du in
their liveblog of the call hit on these two points:
"We've
already changed some policies and procedures as we have gone along."
- Dimon
says this has been an egregious mistake, self-inflicted. Violates
how he runs the company, this is NOT how he wants to run a business.
He's
really hammering that this is about an internal blunder, not
something more fundamental.
According
to Michael De La Merced,
when asked about the ramifications at other firms, Dimon said:
"Just because
we're stupid doesn't mean everybody else was"
One
thing that makes this loss particularly interesting is
that it was just last month that JPMorgan came under fire due to
stories about the "London Whale," a trader who supposedly
had a gigantic CDS portfolio that was at risk.
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