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JPMorgan Loses $2 Billion in Chief Investment Office

AdamT said:
Sadly, I agree, though there's a chance it will be corrected if Obama is reelected. If Romney wins -- no chance at all.
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I seriously doubt it as Obama is being funded by corporate interests just as Romney is.
 
JP Morgan "loses" two billion dollars of investor money, yet Republicans think Morgan is over-regulated.
 
washunut said:
Can you or any other chicken little in this thread point to anything that remotely put JP Morgan or the financial system at risk?
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Neither JPMorgan nor the U.S. financial system are at risk. If anything, this relatively modest problem highlights anew the limitations of current risk management approaches. Details on what happened are not yet available to really understand the nature of the problem.

Having said that, what has been reported is that there was a synthetic credit position. Such positions can entail enormous complexity making them difficult to manage. Despite the relatively easy calibration of such portfolios in textbook cases, actual continual recalibration is much more demanding in the real world. For starters, there are many more uncertainties than is the case in simplified textbook cases and assumptions of rational behavior, efficient markets do not entirely prevail. In short, even as there is always an element of risk in hedging, when it comes to synthetic portfolios, the risk is higher than with more straight-forward hedges such as interest rate swaps. There are many more unknowns and opportunities for failure.

That Jamie Dimon appeared surprised by what happened suggests that the recent event was not within the realm of JPMorgan's expectations. My guess is that Dimon will work hard to address what happened, even as the event imposed more of a reputational hit than actual financial hardship on the company.
 
donsutherland1 said:
Neither JPMorgan nor the U.S. financial system are at risk. If anything, this relatively modest problem highlights anew the limitations of current risk management approaches. Details on what happened are not yet available to really understand the nature of the problem.

Having said that, what has been reported is that there was a synthetic credit position. Such positions can entail enormous complexity making them difficult to manage. Despite the relatively easy calibration of such portfolios in textbook cases, actual continual recalibration is much more demanding in the real world. For starters, there are many more uncertainties than is the case in simplified textbook cases and assumptions of rational behavior, efficient markets do not entirely prevail. In short, even as there is always an element of risk in hedging, when it comes to synthetic portfolios, the risk is higher than with more straight-forward hedges such as interest rate swaps. There are many more unknowns and opportunities for failure.

That Jamie Dimon appeared surprised by what happened suggests that the recent event was not within the realm of JPMorgan's expectations. My guess is that Dimon will work hard to address what happened, even as the event imposed more of a reputational hit than actual financial hardship on the company.
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Wonderful satirical response. "Dimon will work hard". ROFLMAO. After Dimon personally lobbied to kill the kind of regulations that would have prevented two billion dollars from being "lost" to American investors (think pension funds), the idea that it surprised him is satire at it's finest. Great job.
 
leftofabbie said:
Wonderful satirical response. "Dimon will work hard". ROFLMAO. After Dimon personally lobbied to kill the kind of regulations that would have prevented two billion dollars from being "lost" to American investors (think pension funds), the idea that it surprised him is satire at it's finest. Great job.
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He'll work hard within the firm. The reality is that there are limitations to risk management. I favor the regulations on account of those limitations given the vital nature of the nation's financial system and its financial institutions. However, that does not preclude his working to improve his own firm's risk management capabilities.
 
donsutherland1 said:
He'll work hard within the firm. The reality is that there are limitations to risk management. I favor the regulations on account of those limitations given the vital nature of the nation's financial system and its financial institutions. However, that does not preclude his working to improve his own firm's risk management capabilities.
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Wake up Don. That $2 billion went somewhere. Dimon's hired lawmakers killed the regulation that would have prevented it.
 
donsutherland1 said:
Neither JPMorgan nor the U.S. financial system are at risk.
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On the contrary, this result is simply another red flag indicating that nothing has really changed between now and the financial crisis. The banks are even too-bigger-to-fail now than they were then. They are still trading on their own accounts, and engaged in such complex and far-flung machinations that no one can possibly monitor their risk -- including their own CEOs and risk departments (let alone the SEC). The only real improvement is that they are somewhat less leveraged, but their reserves are still inadequate to protect against a Great Recession-level threat.
 
AdamT said:
On the contrary, this result is simply another red flag indicating that nothing has really changed between now and the financial crisis.
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I was only discussing the recent event. I believe it reaffirms that there are limits to risk management and those limits make regulation necessary. I support the regulation that was adopted following the financial crisis. Like you, I also believe that some of the major issues that helped precipitate the financial crisis were not addressed.
 
donsutherland1 said:
I was only discussing the recent event. I believe it reaffirms that there are limits to risk management and those limits make regulation necessary. I support the regulation that was adopted following the financial crisis. Like you, I also believe that some of the major issues that helped precipitate the financial crisis were not addressed.
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Thanks Don, I appreciate these comments. Do you support re-enacting Glass-Stiegel? What about the Volker Act?
 
leftofabbie said:
Thanks Don, I appreciate these comments. Do you support re-enacting Glass-Stiegel? What about the Volker Act?
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I support the Volcker Rule.

I need to give more thought as to whether Glass-Steagall is the only or best approach for dealing with risk associated with non-banking or investment activities or whether options might be reasonable alternatives. Had it not been repealed in 1999, I would probably have left it in place, as I don't believe the arguments for its repeal were sufficiently strong.

As it is no longer in place, one can assess whether it, some alternative, or some combination that it includes its provisions would be most effective for dealing with the risks of today's financial system. Innovation has led to many more opportunities and risks, and what might have worked well following the Great Depression in what was still a commercial bank-dominated financial system might not be quite as effective in today's system with its many "non-bank" institutions, greater linkages, and proliferation of instruments.
 
The old regulations certainly hurt profits and innovation, I doubt bundled mortgages would have been as huge a success as they were, and huge bomb once the 'good' mortgages were contaminated with junk ones, if firewalls had been left in place. Allowing shadow banks to hold paper and loan on it, sometimes in so convoluted a way that not even the inventors understood the process, created a 'someone must be keeping track' mentality as well as a highly competitive field that pushed investment companies to take increasingly bigger risks to maintain a rate of return that draws investors. Couple that with huge trades being done by triggers mostly with no adult supervision and it starts to look like casino capitalism.
 
donsutherland1 said:
I was only discussing the recent event. I believe it reaffirms that there are limits to risk management and those limits make regulation necessary. I support the regulation that was adopted following the financial crisis. Like you, I also believe that some of the major issues that helped precipitate the financial crisis were not addressed.
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Let's remember that we had extensive regulation of Banks prior to Dodd-Frank. Whether those regulators did a good job or had sufficient rules that should have been able to contain the last problem. Certainly the Fed, with Geithner as the president of the NY branch had the power to ban liar loans etc which they did not. They could have made sure that leverage ratios were more rationale, no additional laws were needed for this.

There are few if any experts who point to derivative trading at the banks ( AIG certainly) as the thing that got them in trouble.

The major things that helped cause the problem in my view, Federal agencies, Fannie,Freddie and FHA, too much concentration of assets in too few firms and rating agencies were not addressed. It seems that the law was intended to punish people we were mad ar rather than fix a problem.
 
notquiteright said:
The old regulations certainly hurt profits and innovation, I doubt bundled mortgages would have been as huge a success as they were, and huge bomb once the 'good' mortgages were contaminated with junk ones, if firewalls had been left in place. Allowing shadow banks to hold paper and loan on it, sometimes in so convoluted a way that not even the inventors understood the process, created a 'someone must be keeping track' mentality as well as a highly competitive field that pushed investment companies to take increasingly bigger risks to maintain a rate of return that draws investors. Couple that with huge trades being done by triggers mostly with no adult supervision and it starts to look like casino capitalism.
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Starting? Also, please explain how "The old regulations certainly hurt profits and innovation".
 
leftofabbie said:
Starting? Also, please explain how "The old regulations certainly hurt profits and innovation".
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Yes please explain - some of us think those "innovations" did little except for the banks and some of their officers, certainly not for the industry as a whole.
 
Everybody seems to be talking about the NYC office of JPMorgan and therefore show they haven't been reading the actual news sites.


Bruno Iksil – nicknamed the London Whale - is a Frenchman who works in the London offices of JPMorgan.



JP Morgan trader 'London Whale' blows $13bn hole in bank's value
Iksil was part of team based in JP Morgan's London head office, which was supposed to hedge – or insure – the risks the bank was running. The biggest was credit risk, essentially the chance of customers failing to pay their bills – and the bank had a new strategy to hedge this risk.

Iksil was one of a number of traders involved in this, but the size of his trade in credit default swaps attracted the attention of his rivals. His positions were so large that he was said to be moving prices in this market. In particular, Iksil offered insurance against companies defaulting on an obscure index of 125 companies known as CDX IG 9. The companies on the IG 9 index were as varied as Campbell's Soup, Time Warner and Walt Disney. During his time at JP Morgan, Iksil is reported to have generated $100m, and is usually known for his bearish stances, performing particularly well during downturns.

There is thought to be more than one high-profile trade behind the losses – which the bank has admitted could escalate.
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Link to a clip from Bloomberg.tv JPMorgan Loss May Be `Tip of Iceberg
 
The CEO should quit now. End of story!
 
RDS said:
The CEO should quit now. End of story!
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If you knew anything about the performance of JP Morgan during Dimon's leadership you would be embarrassed by the above.
 
washunut said:
If you knew anything about the performance of JP Morgan during Dimon's leadership you would be embarrassed by the above.
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One bad risk taking decision to the tune of $2 billion wipes away all the good performance. He is answerable to the shareholders.
 
RDS said:
One bad risk taking decision to the tune of $2 billion wipes away all the good performance. He is answerable to the shareholders.
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Of which I am one. The company makes $4-5 billion per quarter.
 
RDS said:
Can they maintain that profit now with the $2 billion loss?
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They will make somewhat less in the next quarter, but that does not change the business longer term.
 
washunut said:
They will make somewhat less in the next quarter, but that does not change the business longer term.
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The point is some heads must roll with the $2 billion loss. I will roll the CEO's head if I am on the board. The main culprit who did the transaction his head rolls without saying.
 
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RDS said:
The point is some heads must roll with the $2 billion loss. I will roll the CEO's head if I am on the board. The main culprit who did the transaction his head rolls without saying.
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No he was not the culprit of this transaction. I would agree that the person who was responsible needs to go.
 
washunut said:
No he was not the culprit of this transaction. I would agree that the person who was responsible needs to go.
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I did not mean he was the culprit. Anyway see how it goes.
 
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