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Deutsche Bank Takes A Jab At JPM's "Fail Whale"

Tyler Durden's picture





 

We have presented our opinion on the JPM prop trading desk repeatedly, in fact starting about a month ago. Last night, Senator Carl "Shitty Deal" Levin also decided to join the fray, which is to be expected: the man needs air time. And now, in a surprising twist, competing banks, all of whom have more than enough skeletons in their own prop desk trading closet, are starting to speak up against the bank that should not be named. Enter Deutsche Bank's Jim Reid and his take on the Fail Whale.

It was a fairly decent day for markets yesterday with the S&P 500 and IBEX up +0.25% and +3.42% respectively and Spain’s 10yr yield closing below 6%. That all changed after JPMorgan’s unexpected trading losses hit the wires after the US close. JPM’s share price fell nearly 7% in after hours trading with its 5yr CDS about +20-25bp wider after the headlines. The broader market was affected with the S&P 500 Futures dropping 10pts after the news.

 

Taking a closer look at the announcement JPM told the market that its Chief Investment Office (CIO) has had significant mark-to-market losses in its synthetic credit portfolio to the tune of $2bn since the end of March. The loss has been partially offset by $1bn of realised securities gains but JPM also flagged that additional losses could be as much as $1bn (or more) and the performance of the portfolio will remain volatile in the quarters to come. Naturally there will be lingering questions around how JPM will manage these positions. Has the firm started to unwind/exit these positions, and if there is more unwinds to come, what does that mean for the broader market? Unfortunately we didn’t get any specifics around the underlying risk positions at the investor briefing overnight. Jamie Dimon said that with hindsight what was meant to be a strategy to hedge the firm’s overall credit exposure was in fact “flawed, complex, poorly reviewed, poorly executed and poorly monitored. The portfolio has proven to be riskier, more volatile and less effective than economic hedge than we thought”. To put in perspective, the losses (as we know of today) are not unmanageable for a firm that has made on average $4.1bn per quarter since 2009, a total balance sheet size of $2.3trillion and a market cap of $155bn. But questions around internal controls, risk management and strategy will arise and it will also be interesting to see how the rating agencies will react (especially Moody’s given its global review of bank ratings). An event like this also gives regulators more firepower in arguing their case for tighter banking regulations.

All good and correct but, dear Deutsche Bank, we have just two words: Boaz Weinstein.

 


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Fri, 05/11/2012 - 07:02 | Link to Comment The 22nd Prime
The 22nd Prime's picture

How's your Synthetic Credit Portfolio doing?

Fri, 05/11/2012 - 07:06 | Link to Comment bdc63
bdc63's picture

Synthetic Portfolio ...

I still have a couple of polyester leisure suits from the disco era down in the basement -- is that what you mean?

Fri, 05/11/2012 - 07:28 | Link to Comment Sudden Debt
Sudden Debt's picture

I remember I had those polyester boxershorts :)

DAMN! whenever I was at a dancing, my balls used to stick to my legs.

But the woman where hot to back than. All what they where wearing was skin tight and just enough to be legal :)

Fri, 05/11/2012 - 08:26 | Link to Comment crawl
crawl's picture

Those leisure suits caught fire if a flame was too close to it.  Kinda like JPM synthethic credit portfolio meeting the rays of daylight.

Fri, 05/11/2012 - 07:11 | Link to Comment r00t61
r00t61's picture

"It's 10 pm...do you know where your Synthetic Credit Portfolios are?"

Fri, 05/11/2012 - 07:23 | Link to Comment slaughterer
slaughterer's picture

Give DB credit: they got rid of their Gordon-Gekko-wannabe employees a few years ago.  Or did they?

Fri, 05/11/2012 - 09:58 | Link to Comment Cole Younger
Cole Younger's picture

Keep in mind this is a "mark-to-market losses in its synthetic credit portfolio." Key being "synthetic" which is "a. Not natural or genuine; artificial or contrived:" or b. Prepared or made artificially" I am sure JP will post "synthetic" earnings as well to cover all synthetic losses.           

Fri, 05/11/2012 - 07:05 | Link to Comment Zero Govt
Zero Govt's picture

Deutsche Bank = Douche Bag

..helping to wreck German prosperity

Fri, 05/11/2012 - 07:04 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Infighting and criticism. Everyone cheering for everyone else' destruction. Ah... Casino Capitalism.

Fri, 05/11/2012 - 07:05 | Link to Comment casino capitalism
casino capitalism's picture

DB wants to forget about the "Boaz Constrictor".  The loss was in the same ballpark as JPM's.

Fri, 05/11/2012 - 07:08 | Link to Comment Dien Bien Poo
Dien Bien Poo's picture

so the Indian Bank Deutsche is telling the cowboy bank how to run its business?

how fucking hilarious. 

Fri, 05/11/2012 - 07:10 | Link to Comment bdc63
bdc63's picture

welcome to the wild, wild west.

Fri, 05/11/2012 - 10:31 | Link to Comment superflyguy
superflyguy's picture

Have not seen a more true statement anywhere else. Especially the "Indian" part.

Fri, 05/11/2012 - 11:07 | Link to Comment Silver Bully
Silver Bully's picture

Kimosabe not mean 'friend', friend.

Fri, 05/11/2012 - 07:15 | Link to Comment cnhedge
cnhedge's picture

How Much More will the Homeownership Rate Fall?
http://www.cnhedge.com/thread-4422-1-1.html
Rogue Traders Hall of Fame 
http://www.cnhedge.com/thread-4425-1-1.html

Fri, 05/11/2012 - 08:39 | Link to Comment JohnKozac
JohnKozac's picture

Australian house prices continue their plunge downward:

"Australian House prices have now fallen 6.1% from their peak, and have been falling for 21 months, which is the longest downturn in nominal prices ever recorded by the ABS."

http://www.debtdeflation.com/blogs/

Fri, 05/11/2012 - 07:17 | Link to Comment fonzannoon
fonzannoon's picture

with all these concernse it seems selling gold is the prudent thing to be doing today

Fri, 05/11/2012 - 08:02 | Link to Comment lizzy36
lizzy36's picture

Bank accounting is a shit show. 

After 2008, why anyone invested in Banks, when one has no idea what exactly the banks "do" is beyond me.

Loss of confidence in the Banks, will continue until people (including sell side analysts) can actually understand and have confidence in their balance sheets.

Looking forward to the congressional hearing, where congressmorons try and understand "synthetic credit portfolio".

Fri, 05/11/2012 - 07:27 | Link to Comment DormRoom
DormRoom's picture

god damn Whaledemort.

 

"“flawed, complex, poorly reviewed, poorly executed and poorly monitored. The portfolio has proven to be riskier, more volatile and less effective than economic hedge than we thought”"

 

Sounds a lot like LTCM!  

Fri, 05/11/2012 - 07:42 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Sounds a lot like LTCM! 

There it is. Apparently the lesson was: we didn't do it big enough.

 

Fri, 05/11/2012 - 08:02 | Link to Comment ZeroPower
ZeroPower's picture

Ironically enough, LTCMs improper VAR model was partially found to be the culprit of their demise - and this is exactly what JPM is non-directly blaming for their loss, as well as their daily VAR swinging >100% last quarter compared to the prior.

Fri, 05/11/2012 - 08:36 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

VaR? That's hysterical.

Rule 8- Never cross a river because it is on average 4 feet deep.

http://www.fooledbyrandomness.com/jorion.html

It's nice to see people still live in the world of causal attribution, it's refreshing.

Fri, 05/11/2012 - 10:46 | Link to Comment Nachdenken
Nachdenken's picture

With two feet I just get by, risk trading. Love the rule, GMB

Fri, 05/11/2012 - 09:36 | Link to Comment Elwood P Suggins
Elwood P Suggins's picture

Sounds like a typical financial transaction to me.

Fri, 05/11/2012 - 07:36 | Link to Comment LongSoupLine
LongSoupLine's picture

This equates to inmates analyzing other inmates after a surprise incident in the showers.

Fri, 05/11/2012 - 07:46 | Link to Comment Vince Clortho
Vince Clortho's picture

If the market is rigged, what does mark to market mean?

Fri, 05/11/2012 - 08:31 | Link to Comment crawl
crawl's picture

One bank calling out another bank...now that is funny.  Honor, integrity and decency are traits missing from all banks and the management at those banks imho.

I'm sure the irony is lost on Jim Reid.

Fri, 05/11/2012 - 10:43 | Link to Comment Nachdenken
Nachdenken's picture

So whos next.  Random name sampler with or without synthetics. BTW Indo-german is an ancient language group.

Sun, 05/13/2012 - 23:25 | Link to Comment qiongqiong
qiongqiong's picture

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