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A few more questions on JP Morgan and the London Whale

rcwhalen's picture





 

 “In this world, shipmates, sin that pays its way can travel freely, and without a passport; whereas Virtue, if a pauper, is stopped at all frontiers.”

 

-- MOBY DICK, Chapter IX

Herman Melville

Updated | Back in mid-May, I wrote a comment on The Institutional Risk Analytics web site, “Questions for the Fed on JP Morgan; Walker Todd on Bernanke, Ed Kane on TARP, asking a couple of basic questions about the situation at JPMorgan Chase (“JPM”). 
 
In the past many weeks since we got that funny email from JPM IR about an unscheduled conference call, media have focused on the past several months as the crucial period in the trades made by the office of the CIO.  But I have some more questions.

First, the notion that the trades which caused the losses by JPM were put on in the last six months or so seems to have been widely accepted in the media.  But is this really the case?  It has been suggested to me that the positions taken by Bruno Iksil (aka the “London whale”) go back several years. Years. 

Indeed, several JPM counterparties have told me that they believe that the initial trades that created the excessive exposures go back more than two years due to the size and other factors.  This is why the size of the positions today is so remarkable.  Today JPM is a subset of these illiquid, derivative indices, an achievement that took years to accomplish.  Years. 

Second, to the public statements made by JPM CEO Jaime Dimon that the losses were caused by a hedge strategy gone bad this year, in the past several months, is this really true? 

The traders who worked around the long book in the office of the CIO each had an allocation separate from the bank’s treasury positions.  The separate positions by Iksil were far larger than those of the other traders in the group. 
 
While JPM maintains that the positions of Iksil were a “hedge” designed to offset risk on the bank’s long book, just the opposite story is heard from people directly in the know.  Indeed, was the London credit book run by Iksil essentially a rogue operation inside the bank?  And not a hedge?     

The third question related to the first two involves the alleged hedging. Rumor has it that officials at JPM held internal discussions more than two years ago focused on whether the positions taken by Iksil should be hedged and/or reserved.  Reserved.

Specifically, I am told that the bank’s managers actually discussed taking a $2-4 billion reserve against the positions more than two years ago because of concerns about the liquidity of the OTC contracts. 

The fact is that JPM has such a large position in these OTC derivatives that in cannot unwind the position.  Thus the idea that Iksil was hedging the bank’s long book seems to be in direct conflict with reports that Iksil’s trades were seen by JPM management as a separate risk exposure that required mitigation and even a formal reserve charge.

The last issue, again, goes to the bad joke called regulation.  Is it really possible that JPM management told the Fed and Office of the Comptroller supervisory personnel not to inspect or monitor the activities of the office of the CIO?  Simply based upon the assets of the business unit, the JPM treasury operation required surveillance. 

Add in the growth in the London Whale Iksil’s trades over a period of years and it seems fair to ask why the examiners failed to see the increase in the reported exposure.  Was it reported?  Did the examiner in charge for the OCC see the growth in the CIO risk exposures?

Over five years the office of the CIO went from a Treasury and agency portfolio to one that included every flavor of corporate exposure and a growing derivatives book.  The OCC has said publicly that 90% of the CIO trades were booked in the lead bank subsidiary of JPM.  Where were the examiners??  Hello? 

And during that period Iksil put on a risk trade that has now come back to haunt JPM.  But don’t you ever believe the corporate spin that this was well intended hedging gone awry over a period of months.  If anything, the tale of Iksil and his sponsors at JPM London seems to be yet another rogue hedge fund run amok and over a period of years.  Years.  Hold that thought fellow scribes. 

That is to say, there is nothing new here save the staggering credulity of many analysts who accept the version of reality currently coming from JPM IR.  But were I working for the FBI and other federal agencies looking into the CIO area of this bank holding company, the 2010-2011 period emails related to possible reserve charges related to the liquidity of the London Whale’s trading book would be top of the want list. 

Then we ask Jamie Dimon the question, again: “When did you first know that the risk exposures of Bruno Iksil and the London credit desk were a problem?”

Final thought: Goldman Sachs was the prime broker for the CIO office.  Have a great day.

 


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Tue, 06/12/2012 - 12:30 | Link to Comment rtn
rtn's picture

Of course JD knew what was going on!  The question is: what will come of the testimony and where does the stock go from here.

Thu, 05/31/2012 - 13:52 | Link to Comment Gringo Viejo
Gringo Viejo's picture

I believe JPMs losses occured over the last 6 months. I believe Lee Harvey Oswald was a lone gunman. I believe the COMEX has over 100 million ounces of silver. I believe in Santa. I believe anything and everything the corporate owned MSM tells me.

Thu, 05/31/2012 - 14:15 | Link to Comment SILVERGEDDON
SILVERGEDDON's picture

Is the pope Catholic ?

Does a bear shit in the woods ? 

If a tree falls on Jamie Dimon's head, does anybody hear it ?

iS J.P. MORGAN TELLING THE TRUTH ? 

HA ha ha ha ha ha ha ha ha -  hah.

Rinse, lather, repeat as necessary, until you have reached a conclusion. 

Thu, 05/31/2012 - 11:14 | Link to Comment oldgasII
oldgasII's picture

Explaining the situation during a shakedown and beating.

"We are Yakuza, we are criminals, this is what we do, why are you surprised?"

At least the Yakuza are not  pretending like the governments and  financial players are these days. 

 

Thu, 05/31/2012 - 09:13 | Link to Comment SwingForce
SwingForce's picture

"Over five years the office of the CIO went from a Treasury and agency portfolio" which got picked clean by POMO & QE. Now its just a huge FRONTRUNNING operation. Can the rest of the TBTFs' be any different?

Thu, 05/31/2012 - 08:45 | Link to Comment unununium
unununium's picture

I didn't know Chris Whalen was a ZH contributor.  Who's next, Ron Paul?

Thu, 05/31/2012 - 07:29 | Link to Comment BlackVoid
BlackVoid's picture

If you believe ANYTHING from THE MEDIA, then you are a fool.

 

It is 90% lies and propaganda, the rest is sport and weather.

Thu, 05/31/2012 - 06:43 | Link to Comment disabledvet
disabledvet's picture

"It's only a 2 billion dollar loss. What's the big deal?" That's the media talking point. The problem of course is "this miniscule loss" has cause 1/3 of JP Morgan's market cap to get wiped out in just a few short weeks. In other words "it's possible what this article has explained has already been priced into the so called bank's stock price." So...sure..."the State of New York and New York City take it in the keister" and any other mutual or pension fund that has a large holding. But don't worry! CNBC will keep "telling all you idiots out there it's only a 2 billion dollar loss"! The fact of the matter is when it comes to finance "propaganda only accelerates the extermination." It takes decades to restore credibility lost by worthless lies like this and the constant lies to say "we have no intent on any giving you anything but useless dribble" for us to "show up at Zero Hedge just to have someplace to get beyond their ugly faces."

Thu, 05/31/2012 - 05:39 | Link to Comment mendolover
mendolover's picture

I prefer this version of JPM's heartburn soon to be ass cancer.

http://www.tfmetalsreport.com/podcast/3782/tfmr-podcast-19-jim-willie

Thu, 05/31/2012 - 15:07 | Link to Comment iDealMeat
iDealMeat's picture

+1,  thanks.  Good interview.

Thu, 05/31/2012 - 05:32 | Link to Comment The Alarmist
The Alarmist's picture

What's the problem here? Let's let JPM simply mark to unicorn and get back to doing the important work they do for all of us.  They are far too big and important to be bogged down in crap like this.

/sarc>

Thu, 05/31/2012 - 05:29 | Link to Comment williambanzai7
williambanzai7's picture

I have no more patience hoping and wishing that the Feds will somehow come to their senses and learn what the difference is between a condom and a swap. Or to have another super fly task force announced and forgotten.

My sincere wish is to see the tower of bubbles teeter to the brink. That is the only viable solution we now have. Get it over with already so we can all move on.

Thu, 05/31/2012 - 14:12 | Link to Comment Zero Govt
Zero Govt's picture

the way to topple the "Tower of Bubbles" is to stop paying your taxes

either that or live in vein hope the Super Committee will turn it all around and save the day

wish for collectivism or the American Way, take individual action: the decision is yours (i made mine years ago with zero regrets)

Thu, 05/31/2012 - 03:11 | Link to Comment GtownSLV
GtownSLV's picture

It's BS that JPM had a "strategy" to create a position as a hedge and then say they didn't know about it? 

This was business as usual to manipulate a market (like silver?) and Iksil or whomever was really behind this kept doubling down on a looser until his looser got so big nobody could\would take the next bet.    

Thu, 05/31/2012 - 00:46 | Link to Comment essence
essence's picture

Don't bother the FBI .... they're busy pursuing "terrorists" using cash to pay coffee shop bills.

Thu, 05/31/2012 - 01:39 | Link to Comment DeadFred
DeadFred's picture

How long has it been since you've seen a terrorist who didn't have an FBI insider egging him on? About the last time I saw the tooth fairy, or maybe since the last time a bank CEO told us the full truth. They speak lies because it's their native tongue.

Thu, 05/31/2012 - 10:35 | Link to Comment Lord Blankcheck
Lord Blankcheck's picture

That guy that shot the Congresswoman and the Fed judge in Tucson,AZ.Maybe the CIA gave him the ammo?

Thu, 05/31/2012 - 00:42 | Link to Comment Clowns on Acid
Clowns on Acid's picture

Ummm....something smells terribly. It is a basic tenet of risk management that with CDS, CDO's, Bank debt, and CDS Indices - one must take into consideration the liquidity of the underlying asset.

And I mean a basic tent. Thus for JPM to manage to accumulate such a large position that it dwarfs the liquidity of the entire market for that asset .......doesn't happen unnoticed or escape any level of oversight at JPM.

There is more to this story.

Thu, 05/31/2012 - 12:29 | Link to Comment Widowmaker
Widowmaker's picture

That's the smell of criminal record bonuses dripping with fraud.

Fuck JP Morgan -- fuck the table of pinstripe faggots that told me last week they are buying all the JPM stock they can get their hands on.

Dimon and everyone else in Fraud Inc go to jail, burn the fucking bank of TBTF lies and ass-fuckers.

"Nobody saw it coming!"

Thu, 05/31/2012 - 01:02 | Link to Comment janus
janus's picture

good point, and remember, these (IG9/18 -- 10s) are most illiquid regardless of the position size.

yup, stinks like...well, let's let the boys at Anchorman do the metaphorin for us:

classic -- http://www.youtube.com/watch?v=IKiSPUc2Jck&feature=fvwrel

that's the smell of desire.

 

i wanna party with paul rudd.  i bet he does drugs.

http://www.youtube.com/watch?v=AmxcmpR1GQA

janus

Thu, 05/31/2012 - 14:28 | Link to Comment Revert_Back_to_...
Revert_Back_to_1792_Act's picture

"IG9/18 -- 10s" - Please define what this is?

What is the underlying asset?

 

 

 

Thu, 05/31/2012 - 02:38 | Link to Comment oldman
oldman's picture

@janus

It may stink, janus

but it sure is an easy way to rob a bank                           om

Thu, 05/31/2012 - 00:34 | Link to Comment Yen Cross
Yen Cross's picture

  Those SPERM Whales?

Thu, 05/31/2012 - 00:32 | Link to Comment Freddie
Freddie's picture

Tylers' - we generally love you but this bit you wrote must be satire:

The last issue, again, goes to the bad joke called regulation.  Is it really possible that JPM management told the Fed and Office of the Comptroller supervisory personnel not to inspect or monitor the activities of the office of the CIO?  Simply based upon the assets of the business unit, the JPM treasury operation required surveillance.

JP Morgan Chase (Manhattan Rockefeller) IS the NY Fed and the Office of the Comptroller.

http://en.wikipedia.org/wiki/David_Rockefeller

Note his and the Roosevelt clan's involvement and employment by the CIA.  He is holding a little Bilderburger shindig down in DC right now.  Drudge has this photo of DR in his bulletproof limo.

http://t0.gstatic.com/images?q=tbn:ANd9GcR3Clr65Tqlf9p3wYagIOZqMdTgzAZLPPsVX--eop6dgfHpg3dPJQ

http://www.infowars.com/bilderberg-launches-unprecedented-security-crackdown/

Thu, 05/31/2012 - 12:25 | Link to Comment NotApplicable
NotApplicable's picture

I read all of Tylers' posts with tongue firmly in cheek.

Snark is an effective form of ridicule.

Thu, 05/31/2012 - 00:24 | Link to Comment WallowaMountainMan
WallowaMountainMan's picture

the numbers are so large that it is not possible to transfer the burden of all this thievery onto the 99%.

let's take a quadrillion in cds notional that gets forced onto the balance sheet, making it 'real' (ty zh). divide that the # of people on the planet, you get $1000 per person-ish. now, how many other quadrillions are out there? then, how many trillions, then billions, (call millions vigor-ish).... no question that averages to more than a number of years wages to a whole bunch of people on the planet. re-sift balances accordingly, and then the zeros start to come in to play....

given the math, it seems, as suggested in an article by zh, that actual paper money will matter as currency, and digital money will be subtracted from itself. that's the only place it can come from. flow is a circle. positive and negative are in the eye of the beholder. not in the eye of the flow. it does not care. its just math.

 

Thu, 05/31/2012 - 09:01 | Link to Comment hangemhigh
hangemhigh's picture

TO: WMM                                                                                                 Thu, 05/31/2012 - 00:24 | 2478366

 

is that elgin, eagle cap  chief joseph country????

Thu, 05/31/2012 - 11:22 | Link to Comment WallowaMountainMan
WallowaMountainMan's picture

eo hangemhigh: eagle cap wilderness and the wallowas

Thu, 05/31/2012 - 00:09 | Link to Comment Thomas
Thomas's picture

Seems to me that public pronouncements are so wrong that they are exposed to a plethora of statutes to protect investors from mis-information.

Wed, 05/30/2012 - 23:48 | Link to Comment Rasna
Rasna's picture

"and it seems fair to ask why the examiners failed to see the increase in the reported exposure"

The Examiners "work" for JPMC.  Over the past 4 years NO ONE, I repeat no one has been indited for fraud (Martha, Bernie and all of the other little fish don't count.  We need to see major bankster CEO's on the 6:00 perp walk.), felony theft - Jon Corzine and the missing $1.5B in customer funds from MF, or wide spread Bankster Corruption.  So, until someone is indicted, tried and goes to jail, I blow my nose at examiners.

"If anything, the tale of Iksil and his sponsors at JPM London seems to be yet another rogue hedge fund run amok and over a period of years.  Years.  Hold that thought fellow scribes."

Anyone with an iota of intelligence knows that JPMC and the other banksters lie through their teeth, are borderline sociopathic and in some cases psychopathic.  They will be the ruin of our country.

"That is to say, there is nothing new here save the staggering credulity of many analysts who accept the version of reality currently coming from JPM IR.  But were I working for the FBI and other federal agencies looking into the CIO area of this bank holding company, the 2010-2011 period emails related to possible reserve charges related to the liquidity of the London Whale’s trading book would be top of the want list."

The FBI or any other investigative agency won't get within sniffing distance of JPMC and this fiasco.  Eric Holder is a worthless shill for the bankster elite.  He carries their water along with O.  Before this is all over, the mountainous losses yet to come, will be socialized and you, the rest of us will foot the bill as the FED writes the check to cover any losses. Jamie is sitting in a lawn chair in the Hamptons working on his tan and sipping a mojito.

Jamie, I fart in your general direction.

Thu, 05/31/2012 - 06:10 | Link to Comment Vince Clortho
Vince Clortho's picture

I applaud your well reasoned post, but I would suggest a few refinements.

1.  Remove the word "borderline" from the phrase "borderline sociopathic".

2.  Agree about the FBI.  It is the domestic intelligence operation for tptb.  There will be no genuine investigation, unless it is to coverup the truth. For the very same reason that examiners failed to see the increase in reported exposure.  The Fox is a bad choice to guard the Hen house.

3.  I suspect Jamie will shortly be looking for a location much more remote than the Hamptons.  New Zealand comes to mind.

 

Thu, 05/31/2012 - 06:21 | Link to Comment Winston Churchill
Winston Churchill's picture

Lets convert his personal fortune to Zim dollars at 1:1 and make him

chairman of the Zimbabwe central bank ,and base him in Harere.

Thu, 05/31/2012 - 04:32 | Link to Comment ZippyBananaPants
ZippyBananaPants's picture

+1 for crop dusting Jamie

Wed, 05/30/2012 - 23:27 | Link to Comment Centurion9.41
Centurion9.41's picture

Interesting piece, but really no different than the speculations & assertions one can find in any CNBC pumptard cheer leader piece....

Hopefully it is all true AND handled appropriately.
What am I thinking, appropriately. They mothballed the guillotine in France some time ago.....

Wed, 05/30/2012 - 23:14 | Link to Comment janus
janus's picture

i love the post and everything, whalen....but, i mean, really!  the fucking FBI?  there's more honor in the slimiest of prop desks.  if the FBI were to do anything, they'd exploit a few less-than-savy janitors at JPM, feed them cash, arms and explosives, and, of course, structure a 'terrorist plot' for them.  and the headlines from the MSM would read something like this, "brave and patriotic execs at JPM help to foil massive terrorist plot"

america is so mightily fucked...it's just a matter of the order in which we fall.

may the FBI rot in hell!

the incident with Mr. Painter was, for janus, the final straw regarding this most wicked federal agency...hell, they're starting to make the cia look all mom-and-apple-pieish.

fast and furious it is, boys.

janus

Wed, 05/30/2012 - 23:13 | Link to Comment web bot
web bot's picture

"The fact is that JPM has such a large position in these OTC derivatives that in cannot unwind the position."

So putting the rhetoric aside, what's the actual end game? Will they blow up?

Thu, 05/31/2012 - 11:26 | Link to Comment 12ToothAssassin
12ToothAssassin's picture

Somehow, someway they wont be allowed to fail. This will undoubtedly cost the little people plenty and miraculously preserve the wealth of 1%

Wed, 05/30/2012 - 23:12 | Link to Comment oldman
oldman's picture

So what is implied here, for me, is that JPM owns the stocking with all the coal in it, having already eaten all the goodies from the good stocking!

Wow---this is truly a disaster---no way out now, but we know why Jamie said they could wait it out: unwind the losses over years

Or am I reading too much into this?      om

Wed, 05/30/2012 - 23:10 | Link to Comment veyron
veyron's picture

How much $$ will it take to bail out JPM?

Thu, 05/31/2012 - 04:45 | Link to Comment zhandax
zhandax's picture

All of them...

Wed, 05/30/2012 - 23:09 | Link to Comment Matt
Matt's picture

So when will the impact of this predicament show up on JPM earnings?

Thu, 05/31/2012 - 05:37 | Link to Comment Zero Govt
Zero Govt's picture

well that's a funny thing

you see Govts, the Accountancy Board and the Big Audit firms all allow Big Bankers to cook their books

so the correct answer to your question is sometime, maybe, never

invest with confidence: regulators, auditors and Govt are ensuring you're not lied to or deceived

Wed, 05/30/2012 - 23:07 | Link to Comment BeetleBailey
BeetleBailey's picture

I concur WB.

My only worry is I have a friend in the JPM commercial office managment sector.

NOTHING TO DO WITH ANY BANKING, TRADING OR ANYTHING CLOSE TO IT

I fear she may get harmed in all of this.

Thu, 05/31/2012 - 05:11 | Link to Comment williambanzai7
williambanzai7's picture

This is the unfortunate thing about these huge babels. When they fall, the people on the bottom, who had zilch to do with what happened, get squashed. The latest example of this is Dewey Leboeuf.

Wed, 05/30/2012 - 22:41 | Link to Comment williambanzai7
williambanzai7's picture

JP Morgan is out worst TBTF Nitemare.

Tyler's post tonight confirms to me that it is the mother of all Ponzis.

Thu, 05/31/2012 - 01:57 | Link to Comment bigwavedave
bigwavedave's picture

Yo Bill, since the "Lehman weekend" those left standing had an epiphany. The had to become "Too Bigger To Fail". The massive growth in OTC notional under "suspended" accounting rules is how they have become "systemically important". It was, and still is, a good strategy for them.

Thu, 05/31/2012 - 05:09 | Link to Comment williambanzai7
williambanzai7's picture

They have gotten so big and there is so much competition in other areas, that this has become the only way they can stay afloat.

All the nonsense about how this magnitude of speculative trading is essential to keep the global economy running is for idiots and Schumers to believe.

There really is a simple big picture narrative that explains all of this and I'm gonna write it.

Thu, 05/31/2012 - 01:23 | Link to Comment SqueekyFromm
SqueekyFromm's picture

Hi WB7!!! Here is you an Irish Poem on this:

A guy at the Great Britain branch.

Decided to buy the whole tranche.

This wasn't too bright.

(Wasn't Moby Dick white???)

Perhaps deals like this made him blanch???

 

Squeeky Fromm, Girl Reporter

Thu, 05/31/2012 - 05:15 | Link to Comment williambanzai7
williambanzai7's picture

You know, I think you and Limerick King should have a Verse Off ;-)

Thu, 05/31/2012 - 01:13 | Link to Comment Al Gorerhythm
Al Gorerhythm's picture

How many regulators does it take to change a lightbulb?

None. Regulators can't change anything.

Do NOT follow this link or you will be banned from the site!