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This Is How To Kill JPM's CIO Operation

Tyler Durden's picture




 

While JPM may or may not have succeeded in burying its deeply humiliating CIO fiasco at the expense of two things: i) a loss of up to 25% in recurring net income and ii) Jamie Dimon proudly throwing numerous of his key traders under the regulatory bus as scapegoats because it took the firm until July 12 to realize that its entire CDS book was criminally mismarked, thus confirming a "weakness in internal controls" (a statement not only we, but Bloomberg's Jonathan Weil vomits all over), the truth is that one way or another, Jamie Dimon will find a way to reposition his prop trading book somewhere else, even if it means far smaller and less obtrusive profits for the next several years. Yet there is a way to virtually make sure that Jamie Dimon is never allowed to trade as a hedge fund ever again, and in the process risk insolvency and yet another taxpayer bailout. Ironically, it is JPMorgan itself that tells everyone precisely what it is.

As the firm presents in Earnings Presentation statement Appendix, which succinctly summarizes the firm's balance sheet, all the CIO/Treasury group is, is merely an conduit to allocate excess liabilities, which in the case of JPMorgan simply means deposit cash, and use these to generate shareholder returns.

A quick glance at the chart above shows that when it comes to traditional banking aspects, there is a roughly $400 billion mismatch between traditional liabilities (Deposits, which amount to $1,116 billion), and assets (Loans, which are $693 billion). The balance of the balance sheet consists of various shadow bank transformation operations, whereby $982 billion in shadow liabilities (yes, there is a reason why we say that rehypothecated, unregulated, and uninflationary-until-replaced-with-deposits Shadow liabilities are just as important as deposits in the grand scheme of things when it comes to funding matched ROA) fund $965 billion in shadow bank asset operations (including reverse repos, Prime Broker ops, trading assets, LOB cash and other).

As such the (appropriately colored) gray-colored boxes in the asset and liability side can be netted out, and all that remains is the traditional liability-asset mismatch, which also includes a roughly $150 billion excess in equity over goodwill.

The net result is that there is $522 billion in excess assets over traditional reserve-funded liabilities (recall there is $1.55 trillion or so in excess reserves, which disturbingly for the Fed is rapidly declining), that the firm can play around with. And instead of lending these assets out, which is what the Fed and politicians would like, JPM is merely engaging in a shadow transformation here as well, and using deposit cash to put a "delta-hedged" position to overall firm risk, which "somehow" ends up amplifying the firm's risk.

What does all this mumbo-jumbo mean, one may ask?

Simple: if it wasn't for $423 billion in excess deposits over loans, JPM would not engage in any CIO/Treasury like operations.

It also means that instead of waiting for regulators to do the right thing and curb JPM from taking on high risk positions in order to reward shareholders and management using deposit cash, knowing full well that in a worst-case scenario the Fed will have no choice but to once again use taxpayer cash to bail out the firm (that whole "heads I win, tails you lose" saying), it is in everyone's hands to make it so that the firm never again engages in this high-risk behavior.

How?

Pull one's cash deposits with JPM. $423 billion to be exact.

And no more JPMorgan internal hedge fund, and no more risk of spectacular LTCM-like blow up.

Q.E.D.

 

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Sat, 07/14/2012 - 14:49 | 2616152 riley martini
riley martini's picture

  JPM Has a huge propaganda machine when they were caught defrauding military families and committing other mortgage fraud people started breaking out their widows and painting antifascist slogans on their buildings . The local media only ran one piece on the fraud followed by hundreds of JPM propaganda  spots of JPM financing new cancer hospital . Listening to the JPM propaganda you would think JPM was curing cancer instead of making money off of cancer victims . As long as people believe the fascist propaganda JPM and the like will steal with immunity .

Sat, 07/14/2012 - 15:05 | 2616181 Yen Cross
Yen Cross's picture

 JPM has a long history of manipulating P/M markets. XAG comes to mind.

Sat, 07/14/2012 - 15:17 | 2616208 GMadScientist
GMadScientist's picture

And use those deposits to buy silver to make damn sure!

Sat, 07/14/2012 - 15:36 | 2616233 El
El's picture

"Oh, it's just too much trouble to change banks. I'd have to have my automatic bill pay changed...my direct deposit...no, it is just too much of an effort." This is what I hear whenever I broach the subject with someone. America. Home of some of the laziest people on the planet.

Sat, 07/14/2012 - 16:24 | 2616306 GMadScientist
GMadScientist's picture

I saw a woman double-park her Mercedes to go to an ATM...in her workout clothes.

Sat, 07/14/2012 - 18:04 | 2616428 Yen Cross
Yen Cross's picture

 Did you offer her a Cigar>< ?   What self righteous woman would go to an ATM?  /sarc

Sat, 07/14/2012 - 18:20 | 2616450 world_debt_slave
world_debt_slave's picture

ha, ha, yeah, they will be the first ones to cry the loudest when there's a bank holiday.

Sat, 07/14/2012 - 15:56 | 2616237 midgetrannyporn
midgetrannyporn's picture

They think their goodwill has value? Mark it zero.

Sat, 07/14/2012 - 16:30 | 2616292 Yen Cross
Yen Cross's picture

When the ' bone heads ' @ CNBS are using charts to justify the XLF , you know the pump & Dump is in full force!

  Maria Barferomo did a good job on "Elliot pimp daddy Spitzer" though!

  i'm building a £ position  based on M/E ACB flows.

Sat, 07/14/2012 - 17:18 | 2616374 Ted Baker
Ted Baker's picture

IT IS TIME US AND OTHER SAVERS AND CITIZENS BANKING WITH JPM START WITHDRAWING THEIR MONEY RAPIDLY LEAVING JP WITH SHAREHOLDERS EQUITY AND FED LENDING FACILITY ONLY....

Sat, 07/14/2012 - 17:20 | 2616376 El Yunque
El Yunque's picture

As I read these coments I'm reminded of the extreme disconnect we're experiencing.

What the fuck is the value of gold when the lions share of us can grow our own food and eat it, while PM stackers become fewer and far between? What IS the nutritional value of a PM?

I'm better off with seeds and water than this bullshit.

I used to laugh at this shit, now it's just become pathetic.

Everyone bitches about Krugman without acknowledging the fact that no one on the planet paractices what he preaches.

Evryone bitches about bankers and the extreme nature of what those fuckers have done and continue to do without any kind of realistic oversight.

And you just want people to leave you alone?

Good goddamn luck with that on a planet of six billion that seem to get fucking dumber everyday.

Good gawd people, wake the fuck up.

Sat, 07/14/2012 - 17:37 | 2616401 Yen Cross
Yen Cross's picture

 you are " NOT" disconnected!  Why would you reply?

Sat, 07/14/2012 - 17:45 | 2616406 Bobportlandor
Bobportlandor's picture

So U think all you need are seeds and water and everone can grow all the food they want. At the end you say Good gawd people, wake the fuck up.

I have some questions:

How many people live in rental units?

How many people live in cities?

How many people have a clue on how to grow food?

How much land do you need per person?

How much food do you need per year? What types?

How do you store the food? Gets awful hot/cold/cloudy.

PM is used as a means of food storage. I have corn you have apples and corn. How do I get the apples if you already have corn?

Shall I continue.

Good gawd El Yunque, wake the fuck up.

Sat, 07/14/2012 - 20:25 | 2616561 grekko
grekko's picture

Bob, bob, bob....CHILL OUT DUDE!  Anyone can grow food, even in the cities.  Bean sprouts in the window in a jar, tomatoes in a planter in the window, or the vacant lot next door.  Dude, with a little internet research, you can grow great mushrooms in the closet.  El Yunque may not need corn, but someone else will, and they might not have apples either, but maybe a can of peaches.  When all else fails, there is the 3rd precious metal...lead (commonly used with smith and wesson).    Then at least, you can eat your corn in peace.

Sat, 07/14/2012 - 20:17 | 2616549 grekko
grekko's picture

Food is great, but when things get better, gold and silver is going to come in very handy.  As for growing food, I agree, but you are going to need the third precious metal to keep what you grow...LEAD!

Sat, 07/14/2012 - 18:08 | 2616436 Joke Heros
Joke Heros's picture

Sorry if this has been posted already but watch Bartiromo and some other shill go up against Jim Rickards, who said Jamie Dimon should lose his job.

Constant interruptions (as per CNBC code) and listen to Barfaroma turn into an auction buyer "yup! yup! yup! yup!"

It's becoming clearer to me that Barfaroma and the other CNBC loudmouths feel they should be on the interviewee side of the table, as they seem to know everything, and their interviews are usually nothing more than a soapbox for attacks or showboating their own opinions.

http://video.cnbc.com/gallery/?video=3000102860

 

Sat, 07/14/2012 - 20:15 | 2616546 grekko
grekko's picture

Rickards was a big player in that game a few years ago, but he finally saw what was in the cards and got while the getting was good.  I'm hoping for him that he was a born again libertarian.

Sat, 07/14/2012 - 18:18 | 2616446 world_debt_slave
world_debt_slave's picture

ha, ha, yeah, I think JPM is doing a good job of killing the bank on their own. They won't go down without stealing as much as possible and get their "Get out of jail free" card.

Sat, 07/14/2012 - 20:12 | 2616543 grekko
grekko's picture

I pray they make more fool decisions in the near future and the gov doesn't bail them out.  In that case I win in the big Wall St Casino because they hold the mortgage on my house.

Sat, 07/14/2012 - 18:36 | 2616465 Danner
Danner's picture

Already pulled my billion out a 6 months ago. They just keep getting worse.  Jamie Hubris & Co.

Sat, 07/14/2012 - 18:44 | 2616475 news printer
news printer's picture
Krugman is a devil of modern economics

I read Krugman's book "End This Depression. NOW. " Well written, reads like a detective story, but it is full of false information, false arguments and dangerous, a truly diabolical recommendation. Krugman suggests that complete depression massively increasing government spending and printing money on a massive scale. After reading the book to say that Krugman is a devil of modern economics.

http://translate.google.com/translate?sl=pl&tl=en&js=n&prev=_t&hl=pl&ie=...

http://www.rybinski.eu/2012/07/krugman-to-diabel-wspolczesnej-ekonomii/#...

Saudi protesters hold anti-regime demonstration in Buraydah

Angry Saudi protesters have held a demonstration against the repressive regime of Al Saud in a city near the capital Riyadh as popular uprising continues to rock the Kingdom.

http://www.presstv.ir/detail/2012/07/14/250884/saudis-hold-antiregime-de...

Sat, 07/14/2012 - 19:21 | 2616500 Atomizer
Atomizer's picture

Just another example of a Five Card Monte getting caught rigging the shell game. Dimon abandoned the card table & has been last scene running with a shoebox clutched in his arm. The other tier partners will soon have rippling effects.

Sat, 07/14/2012 - 19:35 | 2616504 kill switch
kill switch's picture

http://www.youtube.com/watch?v=o-HKf5Pm93k

This is at core of our demise..

Sat, 07/14/2012 - 21:01 | 2616596 EndTheMedia
EndTheMedia's picture

Liberty is often not popular because it requires virtue.

http://www.altmediapost.com/articles/liberty-and-virtue

Sun, 07/15/2012 - 07:44 | 2617045 IMA5U
IMA5U's picture

The whole world is mismarked

 

The US Government

China

Europe

 

If we marked everyything properly the world would implode

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