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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 DOWNGRADES JPMORGAN TO 'A+/F1'; L-T IDR ON WATCH NEGATIVE
 
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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Fri, 05/11/2012 - 17:28 | 2418745 Winston Churchill
Winston Churchill's picture

On a milk carton, somewhere.

Fri, 05/11/2012 - 17:45 | 2418790 NewThor
NewThor's picture

Jon Corzine and Hank Paulson are interviewing pool boys in Geneva.

Fri, 05/11/2012 - 17:34 | 2418760 CryingBear
CryingBear's picture

LOTS OF LOSERS READ ZH AND VISIT BI, MARKETWATCH, AND OTHER SITES TO MOCK PEOPLE AND SHOW OFF HOW SMART THEY ARE.

Fri, 05/11/2012 - 17:42 | 2418774 NewThor
NewThor's picture

How do you define loser?

Fri, 05/11/2012 - 17:42 | 2418781 Poetic injustice
Poetic injustice's picture

You are my least favorite troll, thanks to always CAPS crap and overall poor quality of your comments.
I'd use ignore function, but alas, at given moment no such funcionality.

Fri, 05/11/2012 - 18:10 | 2418850 CryingBear
CryingBear's picture

LICK MY BALLS

Fri, 05/11/2012 - 19:18 | 2418970 eatthebanksters
eatthebanksters's picture

I thought you had them whacked off when you decided to become Jamie's bitch!

Fri, 05/11/2012 - 20:41 | 2419059 lotsoffun
lotsoffun's picture

probably his own mom did us all the favor.

(and he liked it)

 

Fri, 05/11/2012 - 17:54 | 2418809 Global Hunter
Global Hunter's picture

I am smart and like to mock others because I'm a bit of a loser and I'm not what I appear to be

Sat, 05/12/2012 - 03:05 | 2419521 Arkadaba
Arkadaba's picture

I don't post comments that often and less so lately but GO AWAY. No idea why you are here. (Well actually I do have some ideas). This last comment LOL.  (I bolded the LOL - you do know you can do that too?)

Yes we are all losers so we will never benefit from your insights and philosophical musings ... losers all <sigh>

 

 

Fri, 05/11/2012 - 17:36 | 2418762 kill switch
kill switch's picture

Jamie Dimon is a threat to the Fed and global banking system. SOURCE: Coming losses to be reported are 18 (not 2) billion. It’s clear now that JPM’s stock will go the way of Enron and Lehman as was predicted more than a year ago.

 

 

Max Keiser

Fri, 05/11/2012 - 17:38 | 2418769 mick_richfield
mick_richfield's picture

FLASH!   Fitch Downgrades Hindenburg to A+

"We view the ongoing combustion as manageable," Fitch lied.

Fri, 05/11/2012 - 17:45 | 2418776 Global Hunter
Global Hunter's picture

In a few years the guys and gals with Financial Engineering degrees and MBAs will find out they're as useful as Zeppelin Engineering degrees are now.

Fri, 05/11/2012 - 22:22 | 2419230 Umh
Umh's picture

Somethings that can be done are still bad ideas. Some of these financial products seem like shooting black dye at white swans.

Fri, 05/11/2012 - 17:50 | 2418785 razorthin
razorthin's picture

A+??  Maybe if a A stands for Asshat.  These banks are still all broke with mark to reality.

Fri, 05/11/2012 - 18:12 | 2418789 earleflorida
earleflorida's picture

"Vive la France"! 

Fitch, a homegrown rating company - built in France?

S&P and Moody's - home grown patriotism, born and bred in USSA?

The dueling is about to unravel across the mighty Atlantic. Who will S&P downgrade? Mr. Hollandaise de`sauce or Canary Wharf [a coal mining town once known for the extinct canary?]!

Moody's is always moody,... borderline finicky with greasy palms, but with a great sense of smell. Will they strike the listing Spanish Armada?

http://www.telegraph.co.uk/finance/financialcrisis/9005683/Fitch-assuran...         

 

SARC?/ off

Fri, 05/11/2012 - 17:48 | 2418791 GrinandBearit
GrinandBearit's picture

I'd like to see them announce these downgrades on Monday morning at 7am.   

No spine, no balls.

 

Fri, 05/11/2012 - 17:49 | 2418797 Tsar Pointless
Tsar Pointless's picture

Bullish, if I ever did see or hear a bullish announcement.

From the Fitch release:

"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."

In short: Don't worry, be happy.

Remember, kids - next week is options expiration for May.

S&P 1400 again in no time!

/Idiosyncratically pointless.

Fri, 05/11/2012 - 18:39 | 2418902 Bunga Bunga
Bunga Bunga's picture

Foxnews can second this, they just have to air some old tapes from the archives....

"It's a buying opportunity, especially for the financials, maybe like I've never seen before in my entire life"

~Ben Stein, August 18 2007

http://www.foxnews.com/story/0,2933,293819,00.html

Fri, 05/11/2012 - 20:37 | 2419052 lotsoffun
lotsoffun's picture

yup.  i'd love to load up on some citi and freddie and fannie (mae or may not).  and jpm - best of class.  jamie was really well versed as the undertaker.  i thinks i'll be out buying financials monday like popcorn at the movies.

i think gm is cheap too.  and ally bank.  these guys are MOVING cars.  and bank of america - well - you know they are forgiving 150k for home owners - really swell bunch of guys they are and i'm sure they are 'moving forward' and everything is going to be fine, and even better - apparently they are a GTUP bank and so their universal exposure will ensure that should something go wrong, the central bank on mars will bail them out.  mars is currently experiencing an enormous boom in every sort of asset class.  and exporting like mad.

 

Fri, 05/11/2012 - 18:05 | 2418839 virgilcaine
virgilcaine's picture

Max and Stacy Keiser must be going wild with all this.

Fri, 05/11/2012 - 23:09 | 2419307 Treason Season
Treason Season's picture

Max's "Jamie's a tapeworm!" interpretation is Oscar material.

Fri, 05/11/2012 - 18:08 | 2418847 sof_hannibal
sof_hannibal's picture

At some point someone isnt gonna play nice and they are going to want to get paid on these synthetic pretend calculus money functions... bubble pops

Fri, 05/11/2012 - 19:05 | 2418952 jmcadg
jmcadg's picture

You make MDB amusing and refreshing. TWAT.

Thought you'd at least enjoy the CAPS LOCK.

Fri, 05/11/2012 - 19:21 | 2418972 ArrestBobRubin
ArrestBobRubin's picture

Heidi Moore skewers skank-ball Dimon on Lauren Lyster's Capital Account tonight. Heidi gave some great background on how Dimon had turned CIO into a prop trading desk and says this deal is more likely a one way deal than the "hedge" Dimon claims. Also says we're all lucky they didn't crash the entire market...

JP Morgan's "Unicorn Hedge" Fairytale Harpoons the London Whale!
Fri, 05/11/2012 - 19:36 | 2418989 ArrestBobRubin
ArrestBobRubin's picture
The Financial World's Worst Nightmare

"We're getting to the heart of why you own gold"  - long time friend and colleague,
               Wistar Holt (Holt & Shapard Capital Mgmt)

I think every useful blog under the sun has re-hashed the JP Morgan/Jamie Dimon bombshell dropped on the market last night, so I'm going to try to be brief, to the point and hopefully add some "color" and information that is new.

First, Jamie Dimon did a superb job of throwing very expensive, opaque lipstick on the world's ugliest pig and catering the to the Wall Street analysts and media who take what he says and spin it to the public in the best possible light.  In fact, I just saw one headline on Marketwatch that said "JPM stock is lower due to a a bad trade."  A "bad trade?"

What we just saw last night was the result of Wall Street's equivalent of unsupervised special ed. children playing with financial nuclear triggers.  How do I know this?  I used to be one of those unsupervised kids back in the 1990's, when the magnitude of the capital being played with was a small fraction of what it is now.

This is not a "bad trade."  This is a massive proprietary (i.e. bank trading/speculation portfolio) position that has blown up.  Dimon fraudulently refers to it as "an economic hedge" that didn't work as well as they expected.

Jamie Dimon is either completely ignorant of what is going on in JPM's speculation-ridden proprietary trading operation or he's lying.  Or a lot of both.  If he's clueless, then he should be terminated by the board immediately.  If he's lying, he should be investigated by the Obama Justice Department.  But we know the latter has no chance of happening, as Eric Holder's Justice Dept has taken financial fraud prosecutions to a 20 year low. 

Not surprising since JP Morgan and other Wall Street banks are the heart of the client list of Eric Holder's pre-Justice Dept law firm. Contd.

Fri, 05/11/2012 - 22:23 | 2419233 Ned Zeppelin
Ned Zeppelin's picture

You're (as in you are) right! 

Fri, 05/11/2012 - 19:52 | 2419001 DaylightWastingTime
DaylightWastingTime's picture

time to bleed the whale till it's white,  call me Ishmael.

Fri, 05/11/2012 - 20:28 | 2419040 lotsoffun
lotsoffun's picture

oh.  this one is new to me  'GTUB'.  jeez.  everybody was 'global' previously the big 'U' doesn't mean U and me.  it means UNIVERSAL.  how about MGM?  this really is hilarious.  somebody please correct me.  please.  'global' means this globe that we have storefronts on - the 'earth'.  isn't the 'universe' something a bit bigger.  did i miss something?  does JPM have storefronts or trading desks on pluto?  i thought star-trek was fiction?  is it real?

Fri, 05/11/2012 - 20:23 | 2419036 boeing747
boeing747's picture

$2B loss is small candy for a big bank, they can easily hide it away by 'mark to model' or accounting tricks. Why did they reveal this loss by themself now? Most obvious answer is the real loss is much bigger and it can't be covered anymore.

But my take is that Elites may find out Obma has no gut of attacking Iran if elected so they throw out a financial storm to make economy seen worse so 'the fixer' Romey can take the lead. Romey will attack Iran no matter what (I'm 100% sure). So next few weeks will be crucial, if CNBC and MSMs spin 'financial crisis' or 'xxx worese than expected', then Obma has no 2nd chance.

 

Fri, 05/11/2012 - 21:11 | 2419108 trgfunds
trgfunds's picture
JPMorgan Chase & Co. (JPM) - NYSE

36.96 3.78(9.28%) 4:00PM EDT|After Hours: 36.66 0.30 (0.81%) 7:59PM EDT

Fri, 05/11/2012 - 21:15 | 2419109 trgfunds
trgfunds's picture

I remember when I watched AIG burn down to single digits. Started exactly like this. Oh, and in the commercial breaks you got to see AIG commercials touting how big and strong and disciplined they were. Best popcorn moment ever.

Fri, 05/11/2012 - 22:20 | 2419227 Ned Zeppelin
Ned Zeppelin's picture

"The positions were intended to hedge JPM's overall credit exposure, particularly during periods of credit stress."

I thought we all understood instantly that hedging has nothing to do with these positions.  Insult to intelligence = par for the golf course of rich douchebags.

Dimon should be fired for this huge loss.  Why not?

Sat, 05/12/2012 - 00:00 | 2419394 mademesmile
mademesmile's picture

I used to think everyone who posted at this site was paranoid. I lurked for at least a year. Finished reading "Paper Money Collapse" which I highly recommend for anyone trying to see what money is, and what it is not. I also found a relatively local coin dealer who sells junk at spot value. Feeling better about my future :-)

Sat, 05/12/2012 - 00:00 | 2419395 mademesmile
mademesmile's picture

I used to think everyone who posted at this site was paranoid. I lurked for at least a year. Finished reading "Paper Money Collapse" which I highly recommend for anyone trying to see what money is, and what it is not. I also found a relatively local coin dealer who sells junk at spot value. Feeling better about my future :-)

Sat, 05/12/2012 - 01:03 | 2419453 Youri Carma
Youri Carma's picture

TFMR Podcast #19 - Jim Willie, Friday, May 11, 2012 http://www.tfmetalsreport.com/podcast/3782/tfmr-podcast-19-jim-willie

Or on Youtube http://www.youtube.com/watch?v=5x6l5HAg8p4

Willie: “Foreigners aren’t buying (sovereign bonds)”

China Investment Corp. has stopped buying European government debt http://www.zerohedge.com/news/china-gives-europe-will-target-africa-instead

Fed `Deeply Embeded' in Europe Crisis, Crouch Says http://www.youtube.com/watch?v=JNL45JjM6UM

May 9 (Bloomberg) -- Stanley Crouch, chief investment officer of Aegis Capital Corp., talks about the outlook for a euro breakup and the region's debt crisis.

He speaks with Scarlet Fu, Stephanie Ruhle, Sara Eisen and Adam Johnson on Bloomberg Television.

Sat, 05/12/2012 - 01:50 | 2419480 mrmister
mrmister's picture

Bankimplode is reporting that this deal is more like $18 Billion lost and that Jamie and Blankfein met the Bernake ahead of the situation. As expected.

 

http://bankimplode.com/viewnews/2012-05-11_Bernanke51012CrisisOverSpeech...

Sat, 05/12/2012 - 02:05 | 2419493 Yen Cross
Yen Cross's picture

  Tweet / Tweet!

Sat, 05/12/2012 - 03:47 | 2419549 jmcadg
jmcadg's picture

UK press this morning saying $60 billion and 6 traders?!?!
I guess Jamie was talking about the unleveraged amount!
And maybe he's known as the London whale because he's the size of 6 traders!

Sat, 05/12/2012 - 07:10 | 2419607 Sandmann
Sandmann's picture

So who are the Sovereign Wealth funds holding JPM Equity and Debentures ?

http://investors.morningstar.com/ownership/shareholders-major.html?t=JPM

http://investors.morningstar.com/ownership/shareholders-overview.html?t=...

 

Looks like Vanguard Group likes funding Dimon's ventures.....

André F. Perold is the retired George Gund Professor of Finance and Banking at the Harvard Business School. He is also chief investment officer and managing partner of HighVista Strategies LLC, a director of Rand Merchant Bank, and an overseer of the Museum of Fine Arts Boston. (Vanguard board member and a trustee of each of the Vanguard funds since 2004.)

 

Now this Director of Vanguard should know a lot better - he was very cynical about Wall Street reporting but maybe they bought him too.............a lot of Harvard MBAs and Harvard Law in the Officer group at Vanguard - a very bad sign.....

Mortimer J. (Tim) Buckley is managing director of the Retail Investor Group, which serves all individual investors. Mr. Buckley, who began his career at Vanguard in 1991, earned an A.B. from Harvard College and an M.B.A. from Harvard Business School.

 

Chris D McIssac is managing director of the Institutional Investor Group, serving employers offering company-sponsored retirement plans and other institutions such as endowments and foundations. Mr. McIsaac, who joined Vanguard in 1997, earned a B.S. from St. Joseph's University and an M.B.A. from Harvard Business School.


Sat, 05/12/2012 - 09:52 | 2419671 cnhedge
cnhedge's picture

A gradual deterioration in the collateral backing multi-cedulas
http://www.cnhedge.com/thread-4107-1-1.html
http://www.jinrongbaike.com/

Sat, 05/12/2012 - 14:38 | 2420066 zippy_uk
zippy_uk's picture

10,000 derivative contracts sitting on a balance sheet,

and if one derivative contract should accidently tank,

there would be no more contract or JP Morgan bank...

Sat, 05/12/2012 - 15:05 | 2420108 BalanceOrBust
BalanceOrBust's picture

One need only look at JP's exposure to derivatives in the quarterly report on derivatives by the Office of the Controller of the Currency (www.occ.gov).  It is outsized.  Now, if their "hedges" cannot be controlled, one really wonders if al those levered derivative bets are really being managed.  The $2 billion doesn't matter.   The risk management is the key.  For a bank with derivative bets which are 40+ times assets, one really has to wonder.

 

 

Sun, 05/13/2012 - 07:26 | 2420863 Zero Govt
Zero Govt's picture

"Risk Management" did you say????

yes haven't Risk Managers been an absolute God-send to the banking industry... what would bankers do without them (ie. another layer of worthless crones)

Sun, 05/13/2012 - 07:22 | 2420862 Zero Govt
Zero Govt's picture

well you know who your friends are when you get kicked ...and Dimon hasn't any friends amongst ZH bloggers, it's carnage in here

when you consider even Egan Jones rating of gambling junk bank JPM requires 17 pairs of rose tinted spectacles for an 'A' you realise just how deluded the other Agencies are

Sun, 05/13/2012 - 15:14 | 2421708 cristo
cristo's picture
I just heard a rumor over the grapevine regarding bankruptcy of attorneys being brought into meetings RE JPM.. I cannot tell you if this rumor is true.. We will find out on Sunday. http://youtu.be/A9l4bN-e1T0
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