JPMorgan Chase faced intense criticism Friday for claiming that a surprise $2 billion loss
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Banking industry faces calls for tougher regulation after massive loss at JPMorgan - Wi... - 0 views
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the colossal misfire was cited as proof that big banks still do not understand the threats posed by their own speculation
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It just shows they can't manage risk
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if JPMorgan can't, no one can
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JPMorgan is the largest bank in the United States and was the only major bank to remain profitable during the 2008 financial crisis
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the $2 billion loss came from a hedging strategy that backfired, not an opportunistic bet with the bank's own money
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the trades were instead a "major bet" on the direction of the economy
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he did not know whether JPMorgan had broken any laws or regulatory rules
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the bank was "totally open" to regulators
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recharged a debate about how to ensure that banks are strong and competitive without allowing them to become so big and complex that they threaten the financial system
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The JPMorgan loss did not cause anything close to the panic that followed the September 2008 failure of the Lehman Brothers
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Within minutes after trading began on Wall Street, JPMorgan stock had lost almost 10 per cent
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about $15 billion in market value
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It closed down 9.3 per cent
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Fitch Ratings also downgraded the bank's credit rating by one notch
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The broader stock market was down only slightly for the day
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they involved "synthetic credit positions," a type of the complex financial instruments known as derivatives
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Enhanced oversight of derivatives was a pillar of the 2010 financial overhaul law
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the implementation has been delayed repeatedly
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the derivatives market remains too opaque for regulators to oversee
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Corker, a leader of a failed effort last year to block a Federal Reserve rule that slashed bank profits from debit cards, called for a hearing "as expeditiously as possible"
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imposible to legislate or regulate risk out of the financial system
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A mistake was made. Money is going to be lost. It's not customer money. It's not government money. It's JPMorgan's money, the shareholders of JPMorgan
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No one seemed to suggest Friday that JPMorgan had broken a law
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changes promoted by the Obama administration were in many cases similar to what the financial industry had sought before the crisis
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Regulators are still drafting hundreds of rules
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One is the so-called Volcker rule, which will prohibit banks from trading for their own profit
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Dimon conceded that the strategy was "egregious" and poorly monitored
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the trades probably crossed that line because they were making money for JPMorgan
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At some point it goes from being a hedge to being a moneymaker
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the only big bank to escape relatively unscathed
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Dimon said that Paul Volcker, the former Federal Reserve chairman for whom the rule is named "doesn't understand capital markets."
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"Acting like everyone who's been successful is bad and that everyone who is rich is bad — I just don't get it," he said at a conference earlier this yea
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sent an email to JPMorgan's 270,000 worldwide employees assuring them that the company was "very strong."
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JP Morgan (JPM) and Systemic Risk - 0 views
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On Thursday we learned that JP Morgan has lost over $2 billion in the space of two weeks
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stock price fell by 9.3%, wiping out $14.4 billion of the company’s value
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How do you lose so much money so quickly? The short answer is, leverage.
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one likely scenario ([1], [2]) involves derivatives constructed from the riskier components of some European corporate bonds.
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Whale’s notional exposure in one index was speculated to have been $100 billion
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total notional exposure of all of JP Morgan’s trades has been estimated to be $79 trillion.
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JP Morgan “was just engaging in financial tricks of little or no social value”.
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Is JP Morgan “too big to fail”? I think so
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recent paper by Stanford Professor Darrell Duffie highlights an unresolved weakness in the U.S. financial system
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Each day something like $100 billion in such short-term lending is intermediated by two clearing banks
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Duffie believes the system is inherently unstable, as dealer banks depend crucially on the ability and willingness of the clearing banks to provide short-term financing each new day
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Here is Duffie’s recommendation for how to make the tri-party clearing system more stable: Given the systemic importance of tri-party clearing agents, and given their high fixed costs and additional economies of scale, tri-party repo clearing services for U.S. dealers and cash investors should probably operate through a dedicated regulated utility. Although this would likely increase operating costs for market participants, it would enable investment in more advanced clearing technology and financial expertise, allowing greater resilience of the tri-party repo market in the face of financial shocks such as the default of a major dealer. The moral hazard associated with lending of last resort to a dedicated utility is much reduced relative to the case of a financial institution with a wide scope of risk-taking activities.
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this week’s news should remind us that more needs to be done to ensure financial stability and that the incentives of private participants align with the public’s best interests
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Why We Regulate - NYTimes.com - 0 views
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He has, however, been fond of giving Gatewood-like speeches about how he and his colleagues know what they’re doing, and don’t need the government looking over their shoulders.
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So there’s a large heap of poetic justice — and a major policy lesson — in JPMorgan’s shock announcement that it somehow managed to lose $2 billion in a failed bit of financial wheeling-dealing.
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In the 1930s, after the mother of all banking panics, we arrived at a workable solution, involving both guarantees and oversight.
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It probably won’t last; I expect Wall Street to be back to its usual arrogance within weeks if not days.
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As far as we can tell, it used the market for derivatives — complex financial instruments — to make a huge bet on the safety of corporate debt, something like the bets that the insurer A.I.G. made on housing debt a few years ago.
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This system gave us half a century of relative financial stability. Eventually, however, the lessons of history were forgotten.
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No loopholes, no exemptions, no exceptions, no compromise, no ambiguous language. Until Congress reinstates it, moral hazard governs and the losers will be the Americans taxpayers. History will keep repeating itself unless politics and money are taken out of the equation.
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JPMorgan Chase's 'Jamie the Great': tap dancing with derivatives | Opinion | The Seattl... - 2 views
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Jamie Dimon calls it "a doozy." And it was
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$2 billion credit derivatives trading bungle that could mushroom to a $4 billion loss
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tougher regulations may be needed
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his talk about not lumping in "good banks" with "bad banks" has fallen off his pedestal
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everyone is capable of disastrous stupidity
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Dimon doesn't buy the argument that bosses of big, complex companies can never make mistakes
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Three top executives of British firms were sacked in revolts of shareholders, who also rose up against giving new executives millions in "golden hellos."
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With CEO pay going stratospheric as workers' pay grew stagnant, anger was bound to erupt
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there wasn't much ire at the JPMorgan Chase annual shareholders meeting
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Dimon's admission on "Meet the Press" that his team was "sloppy" and "stupid" and used "bad judgment" in incurring the loss
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led to the rolling of three heads at the bank, an FBI investigation, and a congressional ramp-up for more chiding hearings
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While the trade was "poorly vetted and poorly executed," he said it wouldn't make a dent in the "fortress balance sheet."
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hould our company really be spending shareholder funds on, some $7 million last year alone, on lobbying efforts to thwart the Dodd-Frank legislation and the work of regulators to write the rules stemming from that legislation?"
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hareholders, "weary of mistakes" and pledges to reform
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the group endorsed Dimon's pay package of $23 million and let him keep his dual titles of chairman and CEO
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he's known as the favorite banker of the president, who called Dimon "one of the smartest bankers we got"
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checking account at JPMorgan worth $500,000 to $1 million
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New York City's chief audit officer is urging Dimon to "claw back" salary and bonuses paid to the top executives who dragged the bank into the excessive risk
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loathe to "act like a judge and jury" with Ina Drew, the head of the investment office who resigned on Monday, given that she lost $2 billion on that deal while she was making $9 billion on others
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You have to earn respect every day. It's never how great we are. It's always the good, the bad and the ugly
Key Facts - 10 views
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Hedge Funds Are Shadow Banks in Need of Regulation, Bafin Says - Bloomberg - 1 views
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Hedge funds act as shadow banks and should be added to the list of organizations in need of regulation
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Germany’s financial regulator Bafin.
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Shadow-banking definitions by the Financial Stability Board
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are too narrow
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Bafin is working on its own proposals to regulate the sector
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make dodging rules more tedious and expensive
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So-called shadow banking that takes place outside the scope of regulators is being targeted by financial watchdogs on concern that it may be used to evade a global clampdown on excessive risk-taking
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The FSB
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established a list of shadow-banking activities that may warrant tougher oversight
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will seek agreement on the rules by the end of 2012
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Authorities should know why money is deposited offshore
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need for additional rules for derivatives
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credit-default swaps
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who should be allowed to sell CDS
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purchase of the instruments should be restricted
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the CDS market still isn’t transparent
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tripling how much core capital lenders must hold to at least 7 percent of assets
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how much freedom national regulators should have to go beyond minimum EU capital rules
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Finance ministers are set to discuss the rules again at a meeting in Brussels
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German banks that lend to local economies dominated by medium-sized companies are seeking to loosen standards for risk weighting of these loans
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The current crises were caused by subprime and government bonds
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force banks to hold Tier 1 capital equivalent to 3 percent of their total assets
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would prevent lenders from accumulating assets worth more than 33 times their reserves
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The measure is needed to stop banks from evading other capital rules
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considering how to expand the range of assets that qualify as highly liquid
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concerns that the current list is too narrowly focused on government debt
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survive a 30-day credit squeeze
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set to take effect in 2015
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We, for example, have a huge government bond market; others don’t
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JPMorgan's Trading Loss Is Said to Rise at Least 50% - 0 views
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banking America NYtimes JP Morgan derivatives
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The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank’s initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses.
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In March, the company raised the quarterly dividend by 5 cents, to 30 cents, which will cost the bank about $190 million more this quarter.
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At the bank’s annual meeting in Tampa, Fla., on Tuesday, Mr. Dimon did not definitively rule out cutting the dividend, although he said that he “hoped” it would not be cut.
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“JPMorgan Chase has a big hedge fund inside a commercial bank,” said Mark Williams, a professor of finance at Boston University, who also served as a Federal Reserve bank examiner. “They should be taking in deposits and making loans, not taking large speculative bets.”
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In its simplest form, traders said, the complex position assembled by the bank included a bullish bet on an index of investment-grade corporate debt, later paired with a bearish bet on high-yield securities, achieved by selling insurance contracts known as credit-default swaps.
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The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank's initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses. When Jamie Dimon, JPMorgan's chief executive, announced the losses last Thursday, he indicated they could double within the next few quarters.