May 14, 2012
Will return tomorrow.
JP Morgan Loses $2B (Minimum) On Risky Plays
JP Morgan’s shares tumbled last week after roiling the market on May 10, revealing trading losses that were optimistically reported to be $2B dollars. Some of the blame may lie with Bruno “the London Whale” Iksil, nicknamed so for the oversized positions in a credit derivatives index; CEO Jamie Dimon had previously dismissed said trades as “a complete tempest in a tea pot.” Dimon’s position on the matter changed last week when he stated, “In hindsight, the new strategy was flawed, complex, poorly reviewed poorly executed and poorly monitored.” Chief Investment Officer Ina Drew, head of the unit responsible for the trading loss, and who according to Bloomberg, built her 30-year career by embracing risk and avoiding the spotlight will likely take the brunt of the blame. However, according to two former executives, ultimate blame may lie with Dimon’s push to invest in riskier assets to fatten the bottom line. Fitch responded quickly by cutting JPMorgan’s Long-term Issuer Default Rating (IDR) from AA- to A+, and its Short-term IDR from F+ to F1; S&P followed with an outlook negative and stated a downgrade was possible, citing the possibility of broader problems with their hedging strategies.
Why is this a relevant topic for The MorningSnapshot? JPMorgan’s trading loss may call for an increase in Federal Reserve scrutiny of risk management amid the central bank’s current step-up in post crisis supervision of lenders. Fed officials will continue to gather more information of the trading position responsible for the loss, which they had known about for several weeks. They don’t view their role should be to approve or reject individual trades, rather their job is to ensure firms have enough capital to withstand losses, said the unidentified person who was familiar with the matter
The WSJ has reported that a number of executives in the bank’s chief investment office, including Ina Drew, may leave as early as this week.
Today’s Economic Data Lineup (EST)
11:00am: Fed to purchase $4.25b-$5b notes in 5/15/2018 to 2/15/2020 range
11:30am: U.S. to sell $30b 3-mo., $27b 6-mo. bills
- Elizabeth Warren, currently a Massachusetts democratic candidate for the U.S. Senate, called for JPMorgan CEO Jamie Dimon to step down as a director at the Federal Reserve Bank of New York. She stated that he should not be allowed to stay on the board because, “he advises the Federal Reserve on the oversight of the financial industry,” she said in an e-mail release.
- An opinion poll released Saturday showed 78% of Greeks want any new government to do whatever necessary to keep Greece in the euro-zone, according to Kapa Research. Despite this, Alexis Tsipras said in statements released on a state-run TV network, “Syriza wont betray the Greek people…. We are being asked to agree to the destruction of Greek Society
- China, for the third-time in six-months, cut bank’s reserve ratios by 50bps starting May 18 in an attempt to spur growth by pumping money into the financial system to support lending amid data showing a slowdown in growth may be deepening.
“Hold yourself responsible for a higher standard than anybody else expects of you. Never excuse yourself. Never pity yourself. Be a hard master to yourself – and be lenient to everybody else.”
-Henry Ward Beecher
T 312 634 8902
F 312 930 3187
C 312 618 8339