Fitch Downgrades JPM To A+, Watch Negative

Tyler Durden's picture

Update: now S&P is also one month behind Egan Jones: JPMorgan Chase & Co. Outlook to Negative From Stable by S&P. Only NRSRO in pristinely good standing is Moodys, and then the $2.1 billion margin call will be complete.

So it begins, even as it explains why the Dimon announcement was on Thursday - why to give the rating agencies the benefit of the Friday 5 o'clock bomb of course:

  • JPMorgan Cut by Fitch to A+/F1; L-T IDR on Watch Negative

What was the one notch collateral call again? And when is the Morgan Stanley 3 notch cut coming? Ah yes:

So... another $2.1 billion just got Corzined? Little by little, these are adding up.

Oh and guess who it was that downgraded JPM exactly a month ago. Who else but SEC public enemy number one: Egan-Jones:

Synopsis: Reliance on prop trading and inv bkg income remain. LLR declines (down $1.7B QoQ and $3.87B YoY) offset DVA losses in the investment bank. Wholesale loans were up 23% YoY and 2% QoQ. Middle Mkt, Cmml Term, Corp Client and Cmml Real Estate lending increased by 9%, 2%, 16% and 19% YoY. Middle Mkt and Corp lending was up 2% and 3% QoQ respectively, while Cmml Term, and Cmml Real Estate lending were down 2%, and 9% respectively. Card and consumer loans were down 2% and 5% YoY respectively (down 5% and 1% QoQ respectively). Non accruals are up 14% QoQ due to weakness in JPM's student loan portfolio. Reserve coverage is good and capital is adequate. We believe JPM will experience further weakness in its retail portfolio due to a softening economy. We are downgrading.

Full Fitch "analysis":

Fitch Ratings-New York-11 May 2012: Fitch Ratings has downgraded JPMorgan Chase & Co.'s (JPM) Long-term Issuer Default Rating (IDR) to 'A+' from 'AA-' and its Short-term IDR to 'F1' from 'F1+'. Fitch has placed all parent and subsidiary long-term ratings on Rating Watch Negative.
Fitch has also downgraded JPM's viability rating (VR) to 'a+' from 'aa-' and placed it on Rating Watch Negative. In addition, Fitch affirmed JPM's '1'
support rating and 'A' support rating floor. A full list of rating actions follows at the end of this release.
The rating actions follow JPM's disclosure yesterday of a $2 billion trading loss on its synthetic credit positions in its Chief Investment Office (CIO). The positions were intended to hedge JPM's overall credit exposure, particularly during periods of credit stress.
Fitch views the size of loss as manageable. That said, the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity. It also raises questions regarding JPM's risk appetite, risk management framework, practices and oversight; all key credit factors. Fitch believes the potential reputational risk and risk governance issues raised at JPM are no longer consistent with an 'AA-' rating.
Still, at the 'A+' level JPM's ratings continue to reflect its dominant domestic franchise as well as its solid and growing international franchise in investment banking and commercial banking. Capital remains sound and compares well with global peers, providing the bank with sufficient cushion to absorb a material idiosyncratic loss event. Fitch believes JPM continues to be well prepared to meet the minimum standards under Basel III.
Like other global trading and universal banks (GTUBs), the complexity of JPM's operations makes it difficult to fully assess the risk exposure. This trading loss is precisely the kind of risk factor inherent in the GTUB business model.
Fitch believes JPM, like other GTUBs, is in a highly confidence sensitive business and the longer-term implications for the firm's reputation are not yet known. As a result, Fitch believes JPM's ratings remain at heightened risk for downgrade until the firm's risk governance practices, appetite, oversight and reputational impact can be further reviewed.
In addition, ongoing volatility and further losses are likely to arise from these positions as the firm unwinds them, creating some uncertainty. The firm's Value at Risk (VaR) methodology was also changed in first-quarter 2012 (1Q'12) but subsequently reverted back to the original methodology. This resulted in a near doubling of VaR to $170 million, from 4Q'11 VaR of $88 million. The variance emanated from the CIO VaR and a negative $47 million diversification benefit. Fitch believes this also highlights some problems with modeling related to this portfolio.
Resolution of the Rating Watch Negative will conclude upon a further review of how JPM has addressed what Fitch views to be risk management and oversight deficiencies that allowed such a loss to occur. Fitch will also attempt to assess the future earnings and capital impact from these exposures. Fitch will also review the potential implications for market confidence in JPMand reputational damage as a result of this loss on both its liquidity profile and counterparty and dealings.
Fitch believes the Rating Watch resolution could result in a further downgrade of one notch if the risks are not appropriately sized and addressed. The complexity and opacity of these positions may also result in lingering concerns around the firm.
A return to a Stable Outlook will be dependent upon Fitch's ability to gain comfort with the risk management concerns, potential ongoing nature of these synthetic credit positions and volatility they may create, as well as the reputation issues raised.
Fitch has placed all of the ratings below (with the exception of the short-term and commercial paper ratings) on Rating Watch Negative.

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salvadordaly's picture

Someone break this down for me, exactly what will be JPM's future?

battle axe's picture

JPM is now in the process of being squeezed by the people on the other side of this monster trade, and the blood will flow even if JPM begs to be let out. Just wait, the 2bil number is just the beginning. 


This squeeze is a prelude to THE short squeeze which is coming with regards from Silver holders.  On that fateful day Silver will be a stake through the heart of the JPM monopoly that will finally end the beast. 

flacon's picture

Hey Dimon, guess what? FUCK YOU!

flacon's picture

Who is the dickhead who bought 2.7M shares of JPM @ 4:00pm for 36.95? Fuck if I know. Probably his name ends with "imon" and begins with "D".

Careless Whisper's picture

All you JPMorganChase haters are going to have to pop the champagne another time. Whether its $2 Billion or $20 Billion, it. don't. matter. Let's face it, Chase controls the private cartel Federal Reserve. The Fed creates TRILLIONS of dollars a year out of nothing. Do you really think they can't slosh a few Billion over to Chase? This is just a temporary embarassement. They don't give a fuk.

flacon's picture

The Fed creates TRILLIONS of dollars a year out of nothing.


ONE DOLLAR is 24.057 grams of silver. 


So either the Fed is able to create silver out of nothing, or those are not DOLLARS. 


Never the twain shall meet. 


NewThor's picture

Warren Buffet says "American banks are in great shape!"

The Big Ching-aso's picture



JPM.  A special bank run by special people screwing up in special ways.

sgt_doom's picture

Funny, I could have sworn Paul Krugman said the exact same thing recently while giving a talk at the Economic Policy Institute (EPI).

Is Paul Krugman really a hand puppet for Warren?

Magnix's picture

??? Its current around $28.84

flacon's picture

A ONE OUNCE American Silver Eagle, although it says "ONE DOLLAR" is in fact more than a Constitutional US Dollar. 


A Constitutional US Dollar is less than one ounce. :)

mt paul's picture

Federal Reserve Notes...

haven't been dollars

for a long time now..

tocointhephrase's picture

I understand that they are cents these days

NewThor's picture

I'm going to take a price is right stab at the number and say $200 billion.

This doesn't feel like a fart that will be soon forgotten.

The Federal Reserve isn't God.

It must deal with the law of diminishing returns.

sgt_doom's picture

Now, Careless Whisper makes come lucid and cogent comments.

After all, the purpose of bailing out AIG was to ship those billions to JPMorgan Chase, Goldman Sachs and Morgan Stanley to be sure their swaps positions were met and continued ---- otherwise JPMC would have gone phhhhfffft!

Since JPMC is historically Morgan/Rockefeller, and since Rockefeller family is worth considerably more than that so-called $2 billion (Forbes goes by public sources when they post their richest list, the majority of the ultra-rich can only be ascertained through private sources, i.e., endless holding companies, shell companies --- registered through an endless network of foundations, trusts, offshore trusts and offshore finance centers, etc., etc.), has to be in the three-figure billions, at least; ditto Morgan, etc.

Hate to be repetitive, but:

The Forbidden Question:  Who Owns What?

Steve Coll (New America Foundation, funded by the Peterson Foundation), author of the latest book on ExxonMobil, Private Empire:  ExxonMobil and American Power, has been on the book tour, appearing on show after show, where repeatedly one question is never asked:

             Who   owns   ExxonMobil?

Why is the most obvious question never – ever – asked?

Why won’t Amy Goodman, of Democracy Now!, and the various NPR show hosts ever ask this question?

Yes, ExxonMobil is a publicly traded corporation, but who or what owns the most stock in that corporation?  Why is this always a mystery?  Why should this be a mystery?

True, today with an endless number of holding companies and shell companies registered at offshore finance centers to obfuscate ownership – to make all things murky – it is difficult to ascertain, but knowing who owns stuff can be truly enlightening.

What if the same individuals or families own the controlling block of shares of both BP and Transocean?

Who knows the answer to this question --- and why is it never asked?
When certain corporations and banks are mentioned, certain family names come to mind:  ExxonMobil (Rockefeller and Mellon), BP (Rockefeller and Rothschild), AT&T (Morgan and Rockefeller), GE (Morgan), JP Morgan Chase (Morgan and Rockefeller),  Citigroup (Rockefeller), Morgan Stanley (Morgan), Royal Dutch/Shell (Rothschild), Rio Tinto (Rothschild), Northrop Grumman (the Bush family and James Baker), and Transocean (Rothschild).

Quite probably this is still the case?

When Louis Brandeis wrote the epochal book at the beginning of the 20th century, Other People’s Money and How the Bankers Use It, he exposed the true ownership and super-concentration of wealth; an exposé eventually leading to the New Deal.

It’s the 21st century:  do you know who your owners are?

Problem Is's picture

+1... You need to do a guest post...

a la CD... your style is more coherent with less dissonance...

AlaricBalth's picture

BUY? I thought I hit sell short.
Damn that Scottrade IPhone app.

NewThor's picture

"Wow. Those European bonds look like a great investment!" - MFGlobal Trader

"Wow. Those European Mortgage Backed Securities look like a great investment!" - JPMorgan Chase Trader

"Enjoy your fate." - Me

semperfi's picture


DeadFred's picture

Learn about short silver derivatives before you make this assumption. I don't fully understand them but JPM benefits enormously if silver goes through the roof. I've heard a couple people I trust say these derivatives that are part of the loans that JPM gives to silver mining companies (they are the primary lender for miners) and if silver goes high enough JPM will own the mining companies. Any additional information on this would be appreciated.

5880's picture

Triple Minus Fart

thanks 30 rock!

bigun's picture

head trader: hey dimon we lost 2b over here

dimon: >:O

head trader: but thanks to the bernake, our cost of capital is zero

dimon: genius

head trader: so we still bros right?

dimon: <3 bros forever

chunga's picture

Use a Chase credit card and never pay it back.

Poetic injustice's picture

Use Chase credit card to bet against Chase, Enjoy and profit :)


Don't forget to wear trollface while taking out card.

infinity8's picture

Chase me for it, Fuckers!

chunga's picture

In lieu of first payment send a registered dispute letter.

ceedub's picture

I'm about $8,200 ahead of you.


chunga's picture

I am tempted to do a case study.

Mailbox is stuffed with credit card applications. Fill them out and leave the application blank and explain my income is zero, and should they issue credit I consider it a courtesy because of their TBTF bailout status and won't ever be responsible for paying anything back.

If it's approved; max it out and then sue them for unfair debt collection on any negative credit reporting at 1k a pop.

I'll assume it's just another toxic financial bomb that will be pedaled on Wall Street that's "worth" even more if I don't pay.

File the unfair debt collection and use the federal court clerk as a notary so they must respond to them. If they don't respond in ~30 days you win by default.

chunga's picture


To be a *real* pro you have to do this type of thing on an industrial scale a million times a minute with HFT bots.

Otherwise it would be a moral hazard.

THX 1178's picture

Why does this sort of stuff always happen after-hours on a friday? It can't be coincidence can it?

Catch-22's picture

I wrote at 12:56

...more today after the close and a solution (read; spin) by Sunday open...’t-know-plain-scary#comment-2417839

it's always like that...

Conman's picture

Hmm now what could the solution to this be? TARP 2?

Catch-22's picture

Tarp is too obvious… they might go with CANVAS









HoofHearted's picture

$2 a share for JPM late Sunday evening. (I'd love it being as short those motherfuckers as I am.)

I Am The Unknown Comic's picture

I think we should stop referring to it as another bailout and instead call it another FAILout

Coast Watcher's picture

Of course it isn't. For one, it gives the markets a whole weekend to digest and then dismiss it. By Monday morning, this is old news. For two, in politics it's caled "Friday night trash." Saturday is the lowest news readership/viewership day of the week, so it has the least impact on public perceptions.

slaughterer's picture

JPM's future?  They will either become a subsidiary of Goldman Sachs or be re-located to Ireland or Greece for purposes of national security.  

cossack55's picture

Rumor has it the JPM officers and board applied for Iceland citizenship and were told "go to hell vampire-squid Bitchezzz" (in Icelandic "toaazeer btraaaee mntryziii wwineimopzz-ti Bitchezzzz")

battle axe's picture

Perhaps Fitch knows that the 2bil reported is just the beginning of the loss on this monster trade. I think I hear a landslide.

AlaricBalth's picture

Think about it. That $2 billion loss is no longer an asset that can be re-hypothecated to infinity in London. What is the possible exposure?

data_monkey's picture

All of this does not matter. It is simply a ploy to unleash QE3 before the EU implodes.

Once again, in the quiet words of Jamie Dimon, "[The trading loss] plays right into the hands of a whole bunch of pundits...."

So did Dimon time the announcement for Thursday cause he knew the downgrades would come on Friday?