Did The Fed Just Give Us A Very Big Clue Just How Big JPM's CIO Loss May Be?

Tyler Durden's picture

Earlier today we mocked Jamie Dimon for announcing the cancellation of his firm's stock buyback program, just two shorts months after March 13, when none other than JP Morgan forced the Fed to scramble and release the full stress test ahead of schedule, after Jamie Dimon decided to frontrun the full FRBNY stress test release (whose sole purpose was to determine under what worst case scenario the Fed was ok with allowing JPM and various other Bank Holding Companies to proceed with dividend raises/stock buybacks) and announce just that - a dividend increase and a stock buyback. Well, in addition to some well justified egg in Dimon's face, today's results actually have some far more troubling implications. Because while we now know that the buyback is over, what we still don't know, because Jamie Dimon refuses to tell us, is just how big the CIO P&L loss as of close today. Yes, there are many speculations but nobody knows for sure. Zero Hedge was the first to suggest based on reverse engineering of what the potential loss drivers may well have been, and subsequently the slower media corroborated, that the total loss would be orders of magnitude greater than the $2 billion announced on May 10. But how many orders? Well, for what may be a critical clue, we go to the Fed's stress test itself. Presenting Exhibit A - page 73 of 82:

This is from the "Comprehensive Capital Analysis and Review 2012" for JP Morgan, conducted by the NY Fed. Specifically, these are, among others, the permissive gating conditions, which if met, would still enable JP Morgan to proceed with the then announced buyback. The highlighted section above speaks for itself:

  • the cumulative "realized losses/gains securities (AFS/HTM) and Trading and Counterparty Losses" amount to $31.5 billion for the pendency of the stress test.
  • In other words $31.5 billion is how much pain JPM is allowed, in the NY Fed's view, to suffer before losses and dividends/buyback would jeopardize the capital structure, and the buyback process should be halted
  • Once again, as a reminder, the buyback process was halted today.

While we do not know the combined loss on these two line items, what we do know as of this morning is that the prohibitive threshold for buybacks was passed just two months after it had been permitted.

Does this imply that the CIO losses, as conferred by JPM to the Fed in private, have a statutory loss potential of over $31.5 billion through Q4 2013? Or is the hit to just this quarter so substantial, that spreading the loss over a period of time has become meaningless, and the Fed has barred JP Morgan from any other future buybacks, i.e., capital outflows, until such time as the trading/realized loss has been offset and the hit to the balance sheet has been undone?

Something tells us that we won't be the only ones asking these questions.


UPDATE: The Independent is noting this morning Europe-time, that the losses at JPMorgan could have grown to $7bn:

Rival traders reckon that the losses could be as high $7bn. "The markets know pretty much what JP Morgan has and in what sizes," said one trader.


The main index on which Mr Iksil's credit default swaps trades were based has calmed down in recent days, which suggests that JP Morgan has decided to trade out of its positions gradually rather than take one massive hit.




According to JP Morgan traders, in [Ina Drew's] absence there were regular shouting matches between her subordinates in New York and London. "The strife distracted everyone because no one could push back," one trader told The New York Times.


[ZH: We suspect the apparent 'calmness' is simply a reflection of the moderation in the skew in HY9 and IG9 - but does not reflect the noise that we are seeing in various other credit indices such as HYG, JNK, IG18, and HY18 all of which have traded a long way from 'fair-value' recently as JPM reached for any and every liquid hedge (and at the same time caused the NYFed to postpone the MLIII auction) and also the fact that it is highly unlikely that JPM was actually able to trade out of the now super-illiquid tranche positions that were the cause of these market technicals - leaving basis risk even larger on this hedge of a hedge]

IG9 10Y skew almost normalized...


as is IG9 5Y


but this has caused 'problems' in the on-the-run indices...

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prains's picture

somebody needs a 911 part deux

phungus_mungus's picture

I want Maryam Nemazees legs wrapped around my head!

Bastiat's picture

A nice dinner might be a good first step.

Ahmeexnal's picture

I sense rope and a lamp post in Jamie "fucktard" Dimon's future.

Oh regional Indian's picture

While they make for good rallying cries, I don't think ropes or guillotines are necessary or hopefully likely.

Gandhi was wrong about most things, but he got the eye for an eye thing completely right.

These Bankers, if they had to sit long enough (like say 6 months) in an always lit, fully mirriored room, TOGETHER.... punishment enough, eh? Imagine that, a massive, fully mirrored room, full of Banksters. Mayhem. And th ebest part is they'll do each other in.

But seriously, 2 Billion? 7 Billion? Eleventy Quillion.

NUMBers...charade, game, fooled ya, gotcha... all junk NUMBers.

Between TARP And HAARP and TOIL and TWIST....





fourchan's picture

im going to guess 10 billion and chase still wont give me a rate only refi, fuck those crumb bums!

The Alarmist's picture

I haven't done much analysis beyond a quick look at insider trades, but a lot of JPM stock was picked up in the low thirties (restricted or options?) and dumped in the low forties in recent months. That egg-on-face is probably easier to wear with a few extra bucks in the bank.

macholatte's picture



Executive Pay

Ina R. Drew

2010 Compensation Record
  • Salary$500,000
  • Bonus$5,000,000
  • Stock Awards$8,937,000
  • Option Awards$1,108,000
  • Other$398,231
  • Total$15,943,231



GetZeeGold's picture



The Smartest Guys in the Room...move over for the next batch.



blindfaith's picture



Let's see here....110,100 subject to 6.3% Social Secirity tax is $6,936, and 500,000 subject to ordinary income tax ( less deductions, and gosh don't you know there are going to be a bucket full) might make the taxes 50 to 60 at worst. 

So let's do the math...the total tax burden on this $15,9433,231 is about 60 to 70K or 0.00439 PERCENT  !!!  And all you cry baby right wing no tax jerks think this is in YOUR best interests??  DO YOU???

All the rest is subject to long term Cap gains...when they are taken.  And, if you don't think there are ways to reduce this tax, then you need a new accountant.  Right Ina, tell them what fools they are..go on tell them.

chenn's picture

I think you forgot to include the $5,000,000 bonus in your calculation.  This will certainly not be a long term cap gains tax but will be taxed immediately.  So there is another $700,000 if we compute the tax at the magically low 14% you are using.  Of course, that doesn't include any state taxes either.  But hey, facts are annoying aren't they.

William113's picture

GMAC is filing for bankruptcy. I received the notice last week. I have not seen it in the MSM yet. I guess GM doesn't want to share their big profit.

goldfish1's picture

Eleventy Quillion.

I think that's starting to approximate the extent of the fraud of the fiat.

JPM Hater001's picture

I would respect a good old fashion jump.

NemoDeNovo's picture

Well on that there is Good News & Bad News...........

-Good News: There is a "Possibility" that may not happen

-Bad News: There is a Probability that something of that sort may very well happen

Now please note I think anyone who doubts this as a real world probability is a a Damn Fool and/or too ignorant for their own good.  That being said I can't say what it will be or when, but one thing is for certain - We will ALL know it when it happens......

Kepp your eyese open, as the times they are a changin



BlueCollaredOne's picture

I agree but 9/11 was about a 2 trillion dollar "misallocation". We are still dealing with foreplay numbers, but pretty soon, we're all about to get fucked.

SpeakerFTD's picture



I think your interpretation might be slightly off...


"In other words $31.5 billion is how much pain JPM is allowed, in the NY Fed's view, to suffer before losses and dividends/buyback would jeopardize the capital structure, and the buyback process should be halted"

 As I read it, The $31.5 billion represents the losses that would occur under the market stress scenario for trading assets.   These losses would theoretically reduce the Tier 1 Common Ratio from 9.9% to 5.9% with a minimum value through the period of 5.4%.   The total losses under CCAR that would have been necessary to endanger the capital structure are $31.5 billion PLUS the difference between that calculated ratio and the 5% minimum (discussed on pg. 26 along with other min ratios).  But this calculation also includes the theoretical revenue of 59.3B through 2013 and loan provisions of 48.9B, which together are a net positive, at least looking at 2013, so I think trying to use those numbers gets pretty messy pretty quickly.

In short, I don't think that $31.5B number has much meaning, and it certainly is not "how much pain JPM is allowed".

But I think you are on the right track.   The following scenario seems more plausible to me.   Rather than the possibility of a truly astounding loss, what seems more likely is that they have  lost enough to reduce their Tier 1 Common Ratio >= 0.4% (probably materially more), enough that, if CCAR were conducted today, they would fail and their capital plan would be invalidated.     In other words, the  amount of pain they are allowed is only the amount required to reduce the Tier 1 Common Ratio by 0.4%.  In addition, if they are still carrying a position, a theoretical CCAR calculation now would show an even more pronounced loss, so potentially their loss could be less than 0.4%, but if the Fed were vigilant, they could calculate a higher potential loss, and that alone would put handcuffs on the capital plan.

Anyway, that's my take.



tenpanhandle's picture

What about the coffee fund in the Memphis office?

trebuchet's picture

so what is your calc of the loss? 

 quick before market opens, we will know where a safe bail point to cover the shorts will be

Cadavre's picture

$31.5 billion is ....

That's the question. Provisions are expectations - like a possible legal settlement before the details are formalized.

But there was other stuff. Happened after CNBC warned prospective protestors the police would hurt them if they attended the the NATO / G8 Jubilee (While MSNBC was calling the demonstrators "Anarchists"). Now just guessing, mind you, that the importance of NATO/G8 seminars prior to the G8 Necromonger's White Shoe Boyz Ball and final determination of the austerity stipend they'll bleed from the commons (AGAIN), as well as distribution of the austerity "haul" remaining, after the CDS writers are printed out of harms way, and, of course, to the high margin industries patriotically blood clot scream profiting (BIG TIME) off the Global Forever War On Anything and Everything Including Afghani Opium Money Laundering  (hear pretty soon, even ant mounds will be required to scan worker ants coming and going to "work".)

The CPD, in their best reincarnation of the CPD, had their Bahrainy SS "on".

The provision could be principal due to bondholders because, and probably as well, for a bunch, as always, uncollateralized wet paper US money centers through thier  usual London Shadow Counter gates. Why do uncle's bunion tell him JPM, G, MS - and all the usual suspect guys wrote a bunch of CDS on the predictably gonna go south for eternity Greek debt (AGAIN)? And, furthermore, they ain't got the collateral to cover their promises (AGAIN)?

31 Billion is the conservative "public" print. Something is going on and it probably makes 31 billion look like chump change.

Back to lame stream "snarkle" moment: So the CNBC breaks away from what sounded to be a "happy days are here again" market barking, but smelled more an inside inside play day than typical HFT dead cat bouncing theatrics, and blasted the "prez" summary of the Jubilee (so far). Right around the quib from the Oromney not unexpectedly and unequivocally disingenuously on  US military personal having a "can die", or was it "can do" attitude (? explains why military have donated to Dr Paul than the others COMBINED EVUN!), the "Real Change You Can Believe In" guy says:

"The European banks will need to be recapitalized."

Huh - err - hmmm - WTF does that mean?

Did the Emperor For A Day JUST SAY the FED was going to print "re-capitalizing" EZ banks (AGAIN)?

The inside play day seems to be hoping that be the case.

How would that work(anyhow)? EZ Banks would get "dollars" from the and then they would use it to pay the bond holders -(RIGHT?) in EUR EQUIVALENT (for the moment) USD - OR, more simply, another miraculous out of thin air, first you don't see, then you do see, WAD of EURs?  The market sure looks like it is expecting some heavy FED printing but not much EUR printing. When there is no capital. magic witll draw it from the ether.

The lobbyists will figure it out - they always do.

What if that malarkey about the "winner" of a currency wars is the last sovereign with the capacity to inflate is a bunch of horse-shit? (sure glad we didn't step in it!).

It goes to show: If the only way to push price is to inflate the fiat, it must f*cking be g*d's work and that be for sure!

goldfish1's picture

Inflate the fiat, indeed is the lifeline they're clinging to. Now, how does that translate to us and the opportunities and precautions.

Greater minds please advise.

trebuchet's picture

long gold or gold mining stock imho


@SpeaFTD so if your calc is right, that 31.5bn =4% of Tier I core and if 0.4% deterioration is required to stop their stock buy bakc plans then the loss is >3.1bn, which seems entirely plausible, but under estimated. 


Surely, not all the way to 31.5Bn?? the fed would be rolling the printing presses by now

Peter Pan's picture

"somebody needs a 911 part deux"

As long as it hits the whole of Wall Street and not just Dimon's and Corzine's files.

francis_sawyer's picture

Well if anyone wants my input, I'll go with the Sta Puft Marshmallow Man as the bringer of destruction... Krugman would have a field day with that...

BlackholeDivestment's picture

prains ''somebody needs a 911 part deux'' 


...do you really think just a few buildings will do it for them this time?  http://www.youtube.com/watch?v=daqiw6sfDa0&feature=related

prains's picture

no it's not so much the buildings that have to fall but the flag wrapped unified front against the evil axis along with 24/7 cnn coverage of every able bodied navel staring hero would sure help about now

ACP's picture

Can't wait to hear the painful truth. It'll be my guilty pleasure to read all about it. JPM scum.

DeadFred's picture

Order(s) of magnitude. Tyler you made my day and I haven't even read the article yet :)

goldfish1's picture

You think you're going to hear the truth?

williambanzai7's picture

Jamie's got a gun...


Sockeye's picture

Nice find. Don't know how you do it.

JustPrintMoreDuh's picture

2 billion, 30 billion ... whatever.  Whats a few more billion here or there at this point?


FlyoverCountrySchmuck's picture

What's a few billion here or there, to a buddy of OBAMA, when you can bribe open the Treasury (Campaign 'Donations') to cover your losses

Kiwi Pete's picture

Is it Bank run or bank Run! 

chump666's picture

Brilliant Zero Hedge.




strannick's picture

Dear JPM depositors.

How do you like buying chips for Jamie's gambling stack? Glass-Steagle smeagle.

Remember Bear Stearnes promising how solvent they were? The vultures didnt buy it then either.

Tapeworm's picture

BSC didn't have FDIC backing.

Major Major Major's picture

More importantly, no access to the discount window (by one day)...


Conman's picture

Could this be the charcoal colored avian animal we were looking for?

Soul Train's picture

Isn't it a wonder that in today's equity market rally today that JPM and most other similar financials did not participate?