Did J.P. Morgan and Jamie Dimon take honesty too far?
Back in April when rumour of J.P. Morgan's massive exposure to credit indices first surfaced, Jamie Dimon dismissed it as a "tempest in a teapot". Barely a month later Dimon went public and announced a $2 billion loss on the gigantic positions.
This was brazen honesty in an industry renowned for its secrecy and desire to hide losses. The question is, did Jamie Dimon make things worse for J.P. Morgan by going on record about the losses so early?
There is rumour today that J.P. Morgan has sold off the majority of it's position in the credit indices but with the financial media tracking virtually every movement in the credit indices, hedge funds have been relentless in blowing out the spreads to move against J.P. Morgan and causing the firm more pain.
CNBC reports on J.P. Morgan selling off it's position
In recent weeks, the bank has divested itself of 65 to 70 percent of its holdings in a credit, or bond, derivative index known as the CDX IG 9, which tracks a certain cross-section of corporate debt instruments. The position played a major role in what JPMorgan has estimated to be at least $2 billion in losses, a figure bank chief Jamie Dimon first acknowledged publicly on May 10.
Dimon has taken pains to conceal the details of the trade in hopes of making JPMorgan’s exit from the positions smoother. Still, some of the Whale’s positions have been widely reported, and as a result, say credit traders, inhospitable market conditions may have ballooned the bank’s eventual losses to as great as $5 billion.
If Dimon had been more secretive and not announced anything, sure it would have been a nasty shock in the next quarterly reports but the overall losses would most likely have been lower than they are now (CNBC reports up to $5 billion, other sources claim up to $8 billion).
Comments
Have you seen the stock
Have you seen the stock price? this 2 billion dollar loss is in the rear view.
Disclosure: Im long JPM.
Or sell them before
Or sell them before announcement, eh?
edit: still before the quarterly report but simply after moving out of the position
Asatar: There is rumour today
There is rumour today that J.P. Morgan has sold off the majority of it's position in the credit indices but with the financial media tracking virtually every movement in the credit indices, hedge funds have been relentless in blowing out the spreads to move against J.P. Morgan and causing the firm more pain.
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"rumour", you work there, you tell us....
Couldn't happen to a nicer
Couldn't happen to a nicer guy. Quit fucking prop trading and you won't have problems like these. The notion of a TBTF bank CEO being "too honest" is the height of idiocy. If any of them had an ounce of integrity, they would have signed their resignations and attached them to the their TARP applications.
mbaer2012: Have you seen the
Have you seen the stock price? this 2 billion dollar loss is in the rear view.
Disclosure: Im long JPM.
This subsidy helps:
http://www.huffingtonpost.com/2012/06/19/jpmorgan-...
I agree the trade is in the rearview. However, it negatively impacts their risk management perception and general reputation. Not a good look to have the CEO testifying to Congress even when nothing illegal was done. I agree that prop trading should not be allowed at IBs. Lastly, the loss was much greater than $2B... it's possible that it was around $5B. Not that much considering how much they make a quarter but still significant for a single trade... imagine something like this happened across desks.
This was not a prop trade, it
This was not a prop trade, it was a hedge.
mbaer2012: This was not a
This was not a prop trade, it was a hedge.
Hope you're being ironic.
Doesn't matter if it was in
Doesn't matter if it was in the news or not when you're moving the whole god damn market, people notice.
1) In the title, replace JP
1) In the title, replace JP Morgan with Lloyd Blankfein
2) Write it out in huge letters on a piece of cardboard
3) Wear a suit and get your mates to do the same
4) Walk out to the Occupy crowd
"Every man should lose a battle in his youth, so he does not lose a war when he is old"
You are thinking of it
You are thinking of it backwards, what you are thinking is "Hedge fund X" saw on CNBC that Dimon has these huge exposures and said let's beat him down. That is not how the trading world works.
It was more like, "Hedge fund X" trades massive size against JPM learns they have this position, pushes the trade and sells even more to JPM making JPM think they are winning on the trades. Then all of "Hedge fund X" buddies at Y,Z,A,B hear about it and start selling more to JPM. Then they all start to push spreads the other way. Then they all go to media to speed up the bleeding. Jamie Dimon comes out to save his butt and take the quickest loss he could ever take. If not these hedge funds would have squeezed JPM over time and pushed those spreads out more and more.
The traders tell the media the news not the other way. I gurantee someone way smarter than Dimon said. Listen the hedge funds have you by the ballz, you can take 5-8 billion loss now, or you could take 15 billion later by ignoring the media reports. Either way your traders got in way over their heads and we need to pray for 1600 on SPX.
marcellus_wallace: You are
You are thinking of it backwards, what you are thinking is "Hedge fund X" saw on CNBC that Dimon has these huge exposures and said let's beat him down. That is not how the trading world works.
It was more like, "Hedge fund X" trades massive size against JPM learns they have this position, pushes the trade and sells even more to JPM making JPM think they are winning on the trades. Then all of "Hedge fund X" buddies at Y,Z,A,B hear about it and start selling more to JPM. Then they all start to push spreads the other way. Then they all go to media to speed up the bleeding. Jamie Dimon comes out to save his butt and take the quickest loss he could ever take. If not these hedge funds would have squeezed JPM over time and pushed those spreads out more and more.
The traders tell the media the news not the other way. I gurantee someone way smarter than Dimon said. Listen the hedge funds have you by the ballz, you can take 5-8 billion loss now, or you could take 15 billion later by ignoring the media reports. Either way your traders got in way over their heads and we need to pray for 1600 on SPX.
Doubt it... I know a PM at a 15B HF and I talked to him about the HF vs. IB issue. For one, the two sides need each other to survive so I doubt that one side would totally try to squeeze the other. Additionally the bank (espcially JPM) has way more capital power to play with.
The small HFs "sharks" that excerebate spreads are the guys that come late and pick up crums... and they take tail risks for a high probability low $ trade. HF capital is so leveraged and even the 20B funds can't push around a bank such as JPM in a liquid market... the HFs are too diversified.