Mr. Sensitive

May 11, 2012

Holy Crap, Jamie

Filed under: Uncategorized — lbej @ 10:07

Whoops.   http://www.bloomberg.com/news/2012-05-11/jpmorgan-loses-2-billion-as-mistakes-trounce-hedges.html.  So JP Morgan lost $2 billion on ‘egregious’ hedging trades; from my perspective as a former market risk manager, is this a big deal?  You bet it is.  It’s a big deal for lots of reasons, but there are three I want to mention specifically.

  • First, you’re too big to be that dumb.  This is not ‘we took a calculated risk and the trade went against us,’ it’s ‘we didn’t know what we were doing but we do everything big and we did this big, too.’  They sound like they lost $2 billion and they’re not even sure how it happened.  JPM is supposed to be the smart one; this is something we’d expect from BAC or C, but not these guys.
  • Second, these aren’t hedges, they’re directional bets.  I don’t even know what the trades are, but you’re not going to lose that much that fast on a legitimate hedge, so stop pretending.
  • Third—and this is the one that makes me really nervous—the word that jumps out at me is ‘synthetic.’  That’s the risk manager in me, probably, but that word smells all kinds of bad.  It’s what genetic engineering is to medicine; you’re taking financial instruments that were created to meet legitimate economic needs—loans, interest rate swaps, commodity futures, currency forwards, etc—turning them into derivatives of derivatives of derivatives and then being arrogant enough to believe you or anyone else has any idea where the risk resides when you’re through.

So would I sell JPM, down 9% this morning and now trading at a P/E below 8?  You bet I would.  You can’t just lose $2 billion, tell the market you made a mistake, and expect us all to move on.  We know you made a mistake, Jamie.  Tell us why you’re not going to make any more.

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3 Comments »

    • Dimon’s mentor, Sandy Weill, is the man who pushed the Clinton Administration to back the repeal of Glass-Steagall in the first place, by merging Citicorp and Travelers and daring the President to stop him. Clinton backed down; let’s see if Obama will, too.

      Comment by lbej — May 11, 2012 @ 11:05 | Reply

  1. I’m not gonna say I’m hopeless on this matter, but… http://www.bloomberg.com/news/2012-03-20/jpmorgan-employees-join-goldman-sachs-among-top-obama-donors.html

    Comment by Jill Williams — May 11, 2012 @ 11:11 | Reply


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