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).

 
mbaer2012:
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-chase-government-subsidy_n_1608859.html

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.

 
Asatar:
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.

.

"rumour", you work there, you tell us....

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 

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"
 
Best Response

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.

 

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