Friday, May 11, 2012

Oops

Pratfall!
A JP Morgan trader, Bruno Iksil, has been accumulating a giant bet on U.S. corporate bonds. He used derivatives to do it, and he messed up the bet and lost $2 billion for the bank. He could end up losing $1 billion more if the market doesn't cooperate.

[...]

  • How did no one know about this?

Oh, they did. Everyone knew. Thousands of people. Iksil's bets have been well known ever since Bloomberg's Stephanie Ruhle broke the news in early April. A trader at rival bank Bank of America Merrill Lynch wrote to clients back then, saying that Iksil's huge bet was attracting attention and hedge funds believed him to be too optimistic and were betting against him, waiting for Iksil to crash. The Wall Street Journal reported that the Merrill Lynch trader wrote, "Fast money has smelt blood."

When the media, analysts and other traders raised concerns on JP Morgan's earnings conference call last month, JP Morgan CEO Jamie Dimon dismissed their worries as "a tempest in a teapot."

From Dimon's perspective, and for all the harm it's gonna cause him, that is true.

7 comments:

mikey said...

Yeah. Felix Salmon wrote about this yesterday. Apparently, when these kinds of positions become known, the rest of the industry all teams up to crash them - so really smart people have been pouring money into the other side of the bet for a month - forcing the London Whale to keep wading in deeper and deeper. Thing is, Dimon and the rest of the leadership approved digging the hole deeper.

But Dimon's right about one thing - this gives a bunch of ammunition to the common sense arguments for the Volker Rule. If a proprietary trade can cost a bank 2 Billion dollars in a matter of a few weeks, there is NO doubt these guys are going to need to get bailed out again and again.

Unfortunately, this will also cause them to be more opaque and secretive in attempts to prevent their competition from figuring out their positions...

ifthethunderdontgetya™³²®© said...

We can wait for Dimon's employees to do something about this, but I strongly advise not holding one's breath.
~

el Manquécito said...

I heard the market's negative reaction described this morning as "worries about the prospect of increased regulation" rather than having anything to do with an appraisal of the worth of JPMC and its investment tactics. That's some very high rpm spin.

Substance McGravitas said...

I'm not sure where market summarizers get their ideas. It has constantly baffled me that people are expected to believe one sentence descriptions of why the market did what it did.

zombie rotten mcdonald said...

Dimon and the rest of the leadership approved digging the hole deeper.

Perhaps they need more MBAs....

Substance McGravitas said...

Worked for Enron.

M. Bouffant said...

More Republicans/Galtian Overlords w/ cynical election-yr. moves hoping to crash the economy or at least create another bail-out stink.