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JPMorgan Loses $2 Billion in Chief Investment Office

AdamT

AdamT

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Jamie Dimon, CEO of JPMorgan is one of the chief opponents of financial reform, and in particular the Volcker rule. Prohibit banks from trading on their own accounts? Absurd! What could go wrong? We'll all be happy to bail them out again, right?

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said the firm lost about $2 billion on synthetic credit securities after an “egregious’” failure in its chief investment office, which the bank says focuses on hedging.
“This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed,” the New York-based company said today in a quarterly securities filing. JPMorgan declined 5.5 percent to $38.50 in extended trading at 5:55 p.m. in New York.
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The irony is that the losses came from the desk that's supposed to be hedging AGAINST these sorts of losses. Looks like Dimon's really earning that $23 million salary. :roll:
 
AdamT said:
Jamie Dimon, CEO of JPMorgan is one of the chief opponents of financial reform, and in particular the Volcker rule. Prohibit banks from trading on their own accounts? Absurd! What could go wrong? We'll all be happy to bail them out again, right?



The irony is that the losses came from the desk that's supposed to be hedging AGAINST these sorts of losses. Looks like Dimon's really earning his $23 million salary. :roll:
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Awww ****, someone needs a bailout stat!
 
Hedges can be ineffective, due to design or portfolio maintenance flaws when risk is reasonably understood. They can be ineffective due to poor understanding of risk. Sometimes, they can morph into speculation.

Right now, I'm not sure what situation applies to JPMorgan. However, I believe that the Fed should ignore calls to ease recent regulations on the financial sector. The failed hedging strategy at JPMorgan suggests that there is sufficient risk to justify regulation and non-regulatory approaches to risk management e.g., hedging, may not adequately address that risk. In fact, risk management as a whole proved remarkably bad leading up to and during the recent financial crisis. I have not seen empirical evidence that suggests that risk management has qualitatively improved since then.
 
donsutherland1 said:
Hedges can be ineffective, due to design or portfolio maintenance flaws when risk is reasonably understood. They can be ineffective due to poor understanding of risk. Sometimes, they can morph into speculation.

Right now, I'm not sure what situation applies to JPMorgan. However, I believe that the Fed should ignore calls to ease recent regulations on the financial sector. The failed hedging strategy at JPMorgan suggests that there is sufficient risk to justify regulation and non-regulatory approaches to risk management e.g., hedging, may not adequately address that risk. In fact, risk management as a whole proved remarkably bad leading up to and during the recent financial crisis. I have not seen empirical evidence that suggests that risk management has qualitatively improved since then.
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Not only should the existing rules NOT be weakened ... they should be greatly strengthened, or preferably scrapped altogether and replaced with a modern version of Glass Steagall that reestablishes the distinction between traditional banks and investment banks. Otherwise we will surely see a repeat of the Great Recession some time in the next 10-20 years.
 
AdamT said:
Not only should the existing rules NOT be weakened ... they should be greatly strengthened, or preferably scrapped altogether and replaced with a modern version of Glass Steagall that reestablishes the distinction between traditional banks and investment banks. Otherwise we will surely see a repeat of the Great Recession some time in the next 10-20 years.
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Well that's just it. Another repeat is sure to come as the very systemic problems that allowed for this crisis to occur have not been resolved and don't look like they are ever going to get resolved.
 
Mr. Invisible said:
Well that's just it. Another repeat is sure to come as the very systemic problems that allowed for this crisis to occur have not been resolved and don't look like they are ever going to get resolved.
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Sadly, I agree, though there's a chance it will be corrected if Obama is reelected. If Romney wins -- no chance at all.
 
Once upon a time, bankers had a well deserved reputation for being conservative in matters of finance. All that has gone out the window and now we have debacles like this and the 2008 meltdown.

We badly need strong and serious reform with responsible oversight and regulation of the entire financial industry.
 
I wonder how much the CEO made in bonus ? ...thats alot of money to lose...I guess they will have to raise interest rates to and fees on the mass's here to get it back...
 
What is amazing about this case is that a department that is designed to hedge risk took what amounts to a massive singular position. What is even more insane is that the trader utilized CDS in essentially a naked way.

What tops the cake is that the managers were okay with this. I don't see how regulation can fix this. You can't fix dumb.
 
haymarket said:
Once upon a time, bankers had a well deserved reputation for being conservative in matters of finance. All that has gone out the window and now we have debacles like this and the 2008 meltdown.

We badly need strong and serious reform with responsible oversight and regulation of the entire financial industry.
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While you get some of a pass because you have never been in business do you and the other knuckleheads in this thread understand what a bunch of horsesh** you are spewing. While this was a bad piece of business it is important for you and others to recognize that JPM earns 4-5 billion EACH QUARTER. So even with this loss they will probably make money for the quarter and the year. The world is not about to end. Can you or any other chicken little in this thread point to anything that remotely put JP Morgan or the financial system at risk?
 
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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While I don't think this is individually that bad, the fact that a department responsible for hedging risk acted in a way essentially opposite really has me wondering who the hell is in charge of these firms. The risk department took steps that any reasonable hedge fund manager would not do, especially after fallout from 2009.

I agree that no amount of regulation can fix this problem. The fact that they lost that much money on what amounts to an incredible stupid position that they failed to create a viable way of winding down without massive losses leads me to believe that the banks haven't learned their lesson, especially after AIG's near total collapse.
 
UBS lost $2 billion last year cuz of a rogue trader. $2 billion is chicken feed to JP Morgan Chase.
 
RDS said:
UBS lost $2 billion last year cuz of a rogue trader. $2 billion is chicken feed to JP Morgan Chase.
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I'm not going to argue with that. But I think both you and washunut are missing the point here.

The department designed to prevent large losses in other departments via hedging itself just took a comparable large loss by doing something rather idiotic. It's kind of like your security guy responsible for preventing break ins at your house getting his own house burglarized. The bottom line impact may be negligible, but the implications are frightening.
 
obvious Child said:
What is amazing about this case is that a department that is designed to hedge risk took what amounts to a massive singular position. What is even more insane is that the trader utilized CDS in essentially a naked way.

What tops the cake is that the managers were okay with this. I don't see how regulation can fix this. You can't fix dumb.
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I have worked with JP in the past, and it doesn't surprise... The firm is so big, it doesn't seem management isn't very effective or knows the ropes of the company. A lot of dumb people can do a lot of dumb **** at a place like that, and 10 to 1, they won't get caught... there are just way too many people to effectively manage. It could be different at other locations than I was at, but the managers where I was, they didn't know anything about anything going on
 
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JPMorgan Chase has been in a lot of trouble in the past too, they lost a lot in law suits. The company is looking really ineffective, top to bottom. When I saw the headline that the firm was in trouble again, I wasn't very surprised.
 
SheWolf said:
I have worked with JP in the past, and it doesn't surprise... The firm is so big, it doesn't seem management isn't very effective or knows the ropes of the company. A lot of dumb people can do a lot of dumb **** at a place like that, and 10 to 1, they won't get caught... there are just way too many people to effectively manage. It could be different at other locations than I was at, but the managers where I was, they didn't know anything about anything going on
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Please don't tell me you were auditing the New York Office. Because that's what it sounds like.
 
obvious Child said:
Please don't tell me you were auditing the New York Office. Because that's what it sounds like.
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LOL... did you audit their NYC office? I did work on a audit, but not in NYC. I know some people who have audited their NYC office though.
 
obvious Child said:
While I don't think this is individually that bad, the fact that a department responsible for hedging risk acted in a way essentially opposite really has me wondering who the hell is in charge of these firms. The risk department took steps that any reasonable hedge fund manager would not do, especially after fallout from 2009.

I agree that no amount of regulation can fix this problem. The fact that they lost that much money on what amounts to an incredible stupid position that they failed to create a viable way of winding down without massive losses leads me to believe that the banks haven't learned their lesson, especially after AIG's near total collapse.
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I would hope that whomever put of this hedge and his/her get fired and get to learn whatever lessons elsewhere. We should also remember that JP Morgan actually did relatively well in 2008 and was even able to pick up Bean Sterns on the cheap.

I have not heard enough of the facts to know if this falls in the AIG problem where they were writing insurance against packages on mortgages that they did not fully understand the risk involved.

We know it is a hedge gone wrong, but usually when one side of a hedge does poorly the other side does well. It would be nice to have Dimon walk the shareholders through what he had hoped to achieve, why it failed and ig they know enough wither to say, this makes no sense or have they found the right way to do it.
 
obvious Child said:
I'm on the tax side of a Big 4. Barely passed the audit portion of the exam couple years ago.
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I think I like tax more, and I am trying to move into tax...

But since you mentioned it, I would think the NYC office would be worse. That office is probably bigger and less organized.
 
I am studying for the FAR ... :(
 
SheWolf said:
I have worked with JP in the past, and it doesn't surprise... The firm is so big, it doesn't seem management isn't very effective or knows the ropes of the company. A lot of dumb people can do a lot of dumb **** at a place like that, and 10 to 1, they won't get caught... there are just way too many people to effectively manage. It could be different at other locations than I was at, but the managers where I was, they didn't know anything about anything going on
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While anything is possible, it is hard to believe that JP Morgan is largely populated by dummies. My sense is that the people they hire come from the very best schools, and then only students with great grades need apply.
 
washunut said:
I would hope that whomever put of this hedge and his/her get fired and get to learn whatever lessons elsewhere. We should also remember that JP Morgan actually did relatively well in 2008 and was even able to pick up Bean Sterns on the cheap.
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Everyone in that particular team should be fired. From the trader to the partner. If your risk hedging department cannot even do its own hedging properly that's a bad, bad sign.

We know it is a hedge gone wrong, but usually when one side of a hedge does poorly the other side does well.
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Someone's having a lobster buffet with Cristal right now.

It would be nice to have Dimon walk the shareholders through what he had hoped to achieve, why it failed and ig they know enough wither to say, this makes no sense or have they found the right way to do it.
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Would be. Seems right now that the managers were either complacent, or asleep at the wheel.
 
obvious Child said:
Everyone in that particular team should be fired. From the trader to the partner. If your risk hedging department cannot even do its own hedging properly that's a bad, bad sign.



Someone's having a lobster buffet with Cristal right now.



Would be. Seems right now that the managers were either complacent, or asleep at the wheel.
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Granted they look like horses as*** right now. Jamie has been embarrased which can't be good news for the team responsible. I would also expect that when we learn of Jamie's 2012 compensation, he is going to eat some of this loss along with other senior managers.
 
washunut said:
While anything is possible, it is hard to believe that JP Morgan is largely populated by dummies. My sense is that the people they hire come from the very best schools, and then only students with great grades need apply.
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I know some really professional people working for JP, so I am not judging the workers... just the company as a whole, or at least my impression of the company.
 
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