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JPMorgan shares slump 6.5pc after chief Jamie Dimon reveals $2bn trading loss
The Telegraph ^ | 5/10/2012 | Richard Blackden

Posted on 05/10/2012 5:30:50 PM PDT by bruinbirdman

JPMorgan Chase chief executive Jamie Dimon has shocked Wall Street by disclosing the bank racked up $2bn (£1.2bn) of trading losses in the past six weeks and warned they could get worse.

“It puts egg on our face and we deserve any criticism we get,” Mr Dimon told analysts in a hastily arranged call after stock markets closed in New York on Thursday night.

America’s second-biggest bank said that the losses stemmed from a series of complex trades that were designed to hedge the bank's overall risk.

Some of the losses have been offet by gains of about $1bn from the sale of other financial assets, according to the bank, which said that the division that made the trades will now lose about $800m this quarter.

The trading losses are an acute embarrassment for Mr Dimon who has led Wall Street’s fight against what banks have deemed excessive regulation in the wake of the financial crisis. Mr Dimon said that the set of trades, which includes credit default swaps, was designed to shield the bank from risk in the financial markets. “In hindsight, it was bad strategy, bad execution,” he said.

However, the scale of the losses will prompt renewed debate about the level of regulation that is needed to ensure the safety and soundness of the financial system. The chief investment office (CIO), the part of the bank that put on the trades, had moved from hedging risk to making speculative bets designed to reap profits for the bank, Bloomberg reported last month.

Carl Levin, a Democratic Senator who has pushed for tougher regulation of banks' trading, said that the loss "is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making." Mr Dimon said

(Excerpt) Read more at telegraph.co.uk ...


TOPICS: Business/Economy; Crime/Corruption; News/Current Events
KEYWORDS: cdss; dimon; hedge; jpmorgan; trading

1 posted on 05/10/2012 5:30:53 PM PDT by bruinbirdman
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To: bruinbirdman
From marketwatch:

The losses stemmed from trades at the bank’s chief investment office, where a single trader -- dubbed the “London Whale” -- was reported to have taken large positions for the bank in credit-default swaps.

2 posted on 05/10/2012 5:33:43 PM PDT by rawhide
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To: rawhide

What does all this mean? Can Wall Street even hold its dauber up through the election, long enough to unseat Obama.
Grant it, he has already stripped the nation of its wealth, but with some measure of austerity that doesn’t entirely collapse our will to produce, is there hope?


3 posted on 05/10/2012 5:48:36 PM PDT by RitaOK (Nevermind, Newt. Forget the convention. I'm trusting God for the rest.)
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To: RitaOK

I just don’t know why these crooks aren’t in jail. Really, come on...

These JPM people have handed another present to Obozamma to hammer us all with. MORE REGULATION!! He’ll trumpet it over and over.

We are so screwed.


4 posted on 05/10/2012 5:52:10 PM PDT by GRRRRR (He'll NEVER be my President, FUBO! Treason is the Reason! Impeach the Kenyan)
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To: bruinbirdman

they WILL get bailed out by the Federal Reserve.


5 posted on 05/10/2012 5:56:58 PM PDT by PGR88
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To: rawhide

romney better win, he is chomping to sign tarp II


6 posted on 05/10/2012 6:00:38 PM PDT by 09Patriot (your freedom to be you, includes my freedom to be from you.--Wilkow)
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To: bruinbirdman
“It puts egg on our face and we deserve any criticism we get,”

Oh gosh I'm sooo impressed. But save your stoicism --let's just see you --ONLY you-- handle the material LOSSES.

Private profits --> private LOSSES.

SAY NO TO FAKE CAPITALISM.

7 posted on 05/10/2012 6:02:28 PM PDT by gaijin
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To: gaijin

Worst part about all of this is the rapid conference call...they say we screwed up we fixed it no client money was touched. I wonder if they even had time to consult with big ben before going public because it was going to be found. Yes 20bil loss gets bailed out by fed reserve. Worse case we have losess of ~200-300bil which will probably hopefully be ok. It did take almost 1/3 of Lehmans balance sheet to go under and even at 300 it would only be around 15% of jpmorgs......


8 posted on 05/10/2012 6:08:06 PM PDT by lancium
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To: bruinbirdman

A bank gambled away its money? That’s odd.


9 posted on 05/10/2012 6:38:51 PM PDT by gotribe
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To: RitaOK
What does all this mean?

I can't say that I am sure yet, but it is very significant that this came from London. London has lax rehypothecation laws, which allows companies to use client funds as their own without their customer's knowledge. In short, JPM was doing the same thing as MF Global, and has likely lost a lot of their customer's money, who didn't know they were taking these risks. Except this is bigger than MF Global.

This is something that can cause a loss of confidence in the system if any more people lose their funds, and cause a market crash.

10 posted on 05/10/2012 7:00:24 PM PDT by Vince Ferrer
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To: bruinbirdman

The propaganda of using the word “bank”, instead of the real words “gambling house fascism” continues.

Gambling Party(s), free big chips from U.S. citizens.


11 posted on 05/10/2012 7:01:46 PM PDT by Varsity Flight (Phony-Care is the Government Work-Camp: Arbeitsziehungslager)
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To: Varsity Flight; Vince Ferrer

>>> The propaganda of using the word “bank”, instead of the real words “gambling house fascism” continues. “ <<<

No kidding. A perfect example of confidence gone, but for the monster manipulaters. Anybody read Ulsterman tonight, on China pranks?

Just askin’.


12 posted on 05/10/2012 7:09:46 PM PDT by RitaOK (Nevermind, Newt. Forget the convention. I'm trusting God for the rest.)
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To: RitaOK; PGR88
"they WILL get bailed out by the Federal Reserve. "

JPMorgan’s investment bank reported $26.3 billion in revenue and $6.8 billion of net income in 2011.

They can afford a $2B hit. The stock just went down a bit.

Who made the $2B?

yitbos

13 posted on 05/10/2012 7:17:34 PM PDT by bruinbirdman ("Those who control language control minds." -- Ayn Rand)
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To: Vince Ferrer

Well said. If clients start getting antsy and yanking funds (from JPM or others) we could see a repeat of the 2008 liquidity crises that hit the financials.


14 posted on 05/10/2012 7:21:01 PM PDT by Wyatt's Torch (I can explain it to you. I can't understand it for you.)
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To: Wyatt's Torch

Probably worse since Europe is now fully involved and the problems from 2008 where papered over which only made things bigger in terms of the inevitable fail. Then there is the Asian markets, China with apparent or faux internal leadership problems and there threatening of the Philippines.


15 posted on 05/10/2012 7:45:08 PM PDT by DarkWaters ("Deception is a state of mind --- and the mind of the state" --- James Jesus Angleton)
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To: bruinbirdman

I think the REAL issue is that Democrats and the Obama administration permitted these mega-banks to grow to a size that resulted in a huge concentration of banking assets in this country AND the regulation that they did pass did not address the risks that resulted in the 2008 banking crisis. Instead, they saddled the community banking side with onerous regulation that resulted in less credit being offered to the public and raised bank compliance costs that are passed on the the customer. You had better believe the Rats are culpable here. It is important to remember that these large, Wall Street banks were SUPPORTERS of the Democrats and Obama in the 2008 election. Supposedly, too big to fail is a thing of the past according the the Rats with the regulation they passed. But just watch while the Fed comes to the rescue.


16 posted on 05/10/2012 7:47:55 PM PDT by RatRipper (I'll ride a turtle to work every day before I buy anything from Government Motors.)
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To: rawhide

Was “The Whale” a Muzzie by any chance? We know Al-Qaeda has been targeting the financial markets, what better way than to place a mole in a major banking firm?


17 posted on 05/10/2012 7:49:09 PM PDT by dfwgator (Don't wake up in a roadside ditch. Get rid of Romney.)
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To: GRRRRR

The idiots regulated the wrong guys last time around. They are so stupid, the don’t know the difference between a retail bank and an investment. Morons running the government. Theives running the big banks.

They will all burn some day.


18 posted on 05/10/2012 7:57:06 PM PDT by Vermont Lt (I just don't like anything about the President. And I don't think he's a nice guy.)
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To: rawhide
The losses stemmed from trades at the bank’s chief investment office, where a single trader -- dubbed the “London Whale” -- was reported to have taken large positions for the bank in credit-default swaps.

In other words, someone tonight (possibly named the "London Whale") is drinking the strong stuff and running a paper shredder all night long...

19 posted on 05/10/2012 8:12:34 PM PDT by Michael Barnes (Obamaa+ Downgrade)
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To: bruinbirdman
The "World's Largest Prop Trading Desk" Just Went Bust
20 posted on 05/10/2012 8:23:12 PM PDT by Stentor ("All cults of personality start out as high drama and end up as low comedy.")
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To: Stentor
Eh, eh. I read that earlier from a URL on the comments at The Telegraph. Very interesting. The Whale had some help, eh, like Jamie Himself.

yitbos

21 posted on 05/10/2012 8:51:18 PM PDT by bruinbirdman ("Those who control language control minds." -- Ayn Rand)
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To: bruinbirdman

Somehow I have this feeling that this is just the tip of the TBTF iceberg!


22 posted on 05/10/2012 8:52:46 PM PDT by RetiredTexasVet (There's a pill for just about everything ... except stupid!)
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To: bruinbirdman
Some of the losses have been offet by gains of about $1bn from the sale of other financial assets, according to the bank,...

This statement is laughable. If they sold assets then all they did was exchange one asset for another (cash).

23 posted on 05/10/2012 9:32:42 PM PDT by The Duke
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To: bruinbirdman
Here's something for you in your spare time. ZeroHedge just tweeted it.

The J.P. Morgan Guide to Credit Derivatives

This came fully formed from the forehead of The Wicked Witch herself.

24 posted on 05/10/2012 10:00:10 PM PDT by Stentor ("All cults of personality start out as high drama and end up as low comedy.")
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To: The Duke

The sold assets for a book gain which is reported as income. This partially offsets the MTM losses.


25 posted on 05/11/2012 5:22:01 AM PDT by Wyatt's Torch (I can explain it to you. I can't understand it for you.)
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To: bruinbirdman

J. P. Morgan’s Loss: New Ammo for Regulators?
By Patrick Brennan
May 11, 2012 12:05 P.M.

Yesterday, J. P. Morgan announced that its chief investment office has experienced a paper loss of $2 billion on its synthetic credit holdings (meaning securities whose values are derived from various credit products like corporate debt). Especially because J. P. Morgan CEO Jamie Dimon has been a particularly vociferous critic of banking regulation, this has predictably given rise to more calls for further regulation of banks, especially in terms of the investments they can make on their own account. But the particular kind of regulation that liberals are fighting for at the margin wouldn’t really have prevented J. P. Morgan’s huge loss. Dealbook explains their case:

JPMorgan Chase’s $2 billion trading loss, which was disclosed on Thursday, could give supporters of tighter industry regulation a huge new piece of ammunition as they fight a last-ditch battle with the banks over new federal rules that may redefine how banks do business.

“The enormous loss JPMorgan announced today is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making,” said Senator Carl Levin, a Michigan Democrat who co-wrote the language at the heart of the battle between the financial and government worlds, in a statement. “Today’s announcement is a stark reminder of the need for regulators to establish tough, effective standards.”

The centerpiece of the new regulations, the so-called Volcker Rule, forbids banks from making bets with their own money, and a final version is expected to be issued by federal officials in the coming months. With the financial crisis fading from view, banks have successfully pushed for some exceptions that critics say will allow them to simply make proprietary trades under a different name, in this case for the purposes of hedging and market-making.

The problem for reformers, though, is that they shouldn’t really claim this as an example (though of course they still will) of why we need less proprietary trading, and less risky types of it, via a stricter Volcker Rule. That’s because the CIO’s positions here were a couple steps removed from what the Volcker Rule will actually consider proprietary trading. The debate about the Volcker Rule is what activities constitute banks’ trading on their own account, for profit, and what constitutes market-making, that is, the positions the bank has to take on its own account in order to execute trades for its clients. The latter can realize large profits as well, and lead to the banks’ taking on serious amounts of risk; thus, some regulation proponents would like to see these activities severely restricted as well, while free marketeers claim this would clam up capital markets.

But the problem at J. P. Morgan wasn’t the size or riskiness of the bank’s underlying bets (the CIO was hedging against the bank’s whole portfolio risk). It was extremely poorly executed hedging of those underlying bets, and that kind of activity shouldn’t be restricted by even a very zealous Volcker Rule. That said, one could call for stricter regulations about how closely banks’ own risk officers must oversee traders — indeed, it’s fairly obvious that J. P. Morgan should have reined in the CIO’s bets long before it got to this point. One particular trader, the size of whose (eventually catastrophic) positions earned him the sobriquet “the London Whale,” clearly should have had a Captain Ahab looking over his shoulder a long time ago, hounding him to rein in his risk. Whether federal regulators should be standing over his shoulder, too, is a separate question. For the most part, though, in order to justify that, you’d have to prove that the banks’ positions represent a significant risk to the U.S. or global financial system and therefore must be overseen or reined in, which, again, wasn’t really the case here.


26 posted on 05/11/2012 10:27:32 AM PDT by Wyatt's Torch (I can explain it to you. I can't understand it for you.)
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To: Wyatt's Torch

Reinstitute Glass-Steagall, problem solved.


27 posted on 05/11/2012 10:30:07 AM PDT by dfwgator (Don't wake up in a roadside ditch. Get rid of Romney.)
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To: dfwgator

I don’t have a problem with that. Let the investment firms go down alone and let the banks do what they were intended to do. The “too big to fail” (and I am 100% behind TARP and the bailouts) was a result of the investment sides risking dragging down the entire banking sector which would have been catastrophic. JPM and their “fortress balance sheet” are not at risk currently but if it were to come to that we could not allow JPM to fail as currently constructed. If their CIO arm was a separate entity then let them fail and the risk would be somewhat contain (save the counterparties of course).


28 posted on 05/11/2012 10:41:57 AM PDT by Wyatt's Torch (I can explain it to you. I can't understand it for you.)
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To: Wyatt's Torch
" it’s fairly obvious that J. P. Morgan should have reined in the CIO’s bets long before it got to this point"

Insiders say Jamie Dimond knew about this all along. Gave it his blessing.

yitbos

29 posted on 05/11/2012 3:33:15 PM PDT by bruinbirdman ("Those who control language control minds." -- Ayn Rand)
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To: bruinbirdman

From MarginalnRevolution:

The banking unit of JPMorgan Chase alone made $12.4 billion last year. The holding company has over $2.26 trillion in assets and is the largest U.S. bank and 8th largest in the world. The holding company made $29.9 billion in operating income and just over $20 billion in net income for 2011.

So, this initial loss of $800M [TC: with more to come] represents approximately 4% of its total net profit for all of 2011, less than 2.7% of its operating income. Certainly it’s not a good thing. But the reported losses, in and of themselves, are not likely to have a dramatic impact on JPMorgan’s long-term financial stability.

Here is more, hat tip to Angus as well.  A $2 billion loss is about one percent of their equity and about 0.1% of their assets.


30 posted on 05/12/2012 1:05:22 PM PDT by Wyatt's Torch (I can explain it to you. I can't understand it for you.)
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