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Jamie Dimon's Quandary: Now That JPM's Internal Hedge Fund Is Gone, Where Will 25% Of Net Income Come From?

Tyler Durden's picture


Much has been said about JPM's CIO Loss (which so far has come at a little over $5 billion, just as we calculated in the hours after the original May 10 announcement). And with the so called final number out of the way, investors in JPM have breathed a sigh of relief and are stepping back into the company hopeful that a major wildcard about the firm's future has been removed. The issue, however, is that the CIO loss was never the question: after all JPM could easily sell debt or raise equity to plug liquidity shortfalls. The real issue is that just as we explained months before the loss was even known, the Treasury/CIO department was nothing short of the firm's unbridled hedge fund which could do whatever it chooses, and not be held accountable to anyone at least until its counterparties broke a story of an epic loss to the media. And thus the problem becomes apparent: now that every action of the CIO group is scrutinized under a microscope by everyone from management to auditors to regulators to analysts to fringe blogs, the high flying days of whale trades are forever gone. The question then is just how big was the contribution of the Treasury/CIO group, which until today was buried deep within JPM's Corporate and PE Group and not broken out. Luckily, as today's JPM Earnings Presentation (page 14) shows, CIO is now a distinct line item.

(The CIO group is also for the first time broken out as a separate line item in JPM's Financial Supplement, p. 34)

Thanks to the new breakout, reminiscent of Goldman starting to break out its own Prop Trading group some years ago, we now know exactly just how big the contribution to both revenue, but more importantly, net income was courtesy of JPM's Hedge Fund.

The result is nothing short of stunning.

As can be seen on the chart below, the CIO group accounted for whopping 31.5% of Net Income (adjusted to exclude DVA, Reserve additions or releases and one-time items) in 2009, for a just slightly less ridiculous 19.1% of adjusted Net Income in 2010, and 10% in 2011!

Of course, once Bruno Iksil got caught with his back against the wall, the CIO group blew up, and results in a Net Income loss of $2.1 billion in Q2 2012 as was reported today.

And yes, the bloodletting may be over. But something else that is also over, is CIO being a net contributor of up to 30% of Net Income. In fact, going forward, it is safe to assume that since now the Treasury group will return to its standard role of hedging the firm's other positions, it will likely have a negative contribution to net income. After all, if anything, as a result of the CIO debacle Jamie Dimon has at least learned the definition of hedging, which does not mean accounting for a whopping 30% of total net income in any one year!

And this, more than anything is what JPM would be worried about: because is between 20% and 30% of Net Income is gone on a going forward basis, then Jamie Dimon, and JPM shareholders, will have a major problem in the future: CIO generated roughly $4 billion on average per year (2009 and 2010) in the years it was a properly functioning hedge fund. This "profit center" is now gone forever.

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Fri, 07/13/2012 - 15:43 | 2614201 GolfHatesMe
GolfHatesMe's picture

No freaking Shit, corrupt or not, the underlings are going to fill this void with revenue?  How the hell is that going to happen?  Stupid Algo.

Fri, 07/13/2012 - 15:57 | 2614265 idea_hamster
idea_hamster's picture


Fri, 07/13/2012 - 16:12 | 2614297 Kitler
Kitler's picture

Where Will 25% Of Net Income Come From?

50% more Muppetslamming and Muppetstuffing until the next round of QE.

Fri, 07/13/2012 - 16:14 | 2614329 Doubleguns
Doubleguns's picture

Bastards will probably take up silver manipulation or some other such evil.  /s

Fri, 07/13/2012 - 16:36 | 2614413 Muppet of the U...
Muppet of the Universe's picture

Alright, so all of you are saying, they will manipulate markets and cheat.  THEY ALREADY DO.  They have PROVEN that they are talentless!  Their only strategy is martingaling...  they are WEAK and STUPID. 

Quants?  Fucking morons who couldn't win if they tried.  I fucking wreck them with my brain given the chance.  But this is not the point.


They will have another trading desk, and simply hide it or rename it.  They must have another trading desk, or their derivitives trades will tank everything.  Then the muppets will get angry, and bankers heads, might roll.  That isn't a desirable outcome.  Bubble needs to stay alive at least through election, and hopefully for at least another half decade.  End of story.

Fri, 07/13/2012 - 17:58 | 2614481 notbot
notbot's picture

"Where Will 25% Of Net Income Come From?"

Sallie Krawcheck made this point this morning; hosts just glossed right over it.


Fast forward to 5:00

"What does this mean for the normalized earnings for this company...Does that mean the ROE isn't 10 to 12, it's 8?, it's 7? Which gets very close to your cost of capital"

Fri, 07/13/2012 - 18:11 | 2614671 smiler03
smiler03's picture

 "Where Will 25% Of Net Income Come From?"

It's bloody obvious where it will come from. Clients segregated funds. Duh!!!

Fri, 07/13/2012 - 20:16 | 2614897 JPM Hater001
JPM Hater001's picture

Not that anyone cares but I have been sailing on Lake Michigan today in complete and total peace that everything in the world was...well let's just say..."I love it when a plan comes together."

Fri, 07/13/2012 - 21:04 | 2614960 fnordfnordfnord
fnordfnordfnord's picture

Aw man, sorry to hear about your loss.

Fri, 07/13/2012 - 16:21 | 2614353 ArkansasAngie
ArkansasAngie's picture

Ben is going to inflate their arses out of that hole

I wonder how smoke has been blown up the boards skirts

Fri, 07/13/2012 - 15:59 | 2614266 MillionDollarBonus_
MillionDollarBonus_'s picture

I worry when I see this kind of economical ignorance. JP Morgan is a Bulge Bracket investment bank with many different revenue models, all of which deliver world class services to clients. Investment banking, private banking, market making, prime services and sell side analysis are but a few of the services provided by JP Morgan. JP Morgan's clientele is impressively prestigious, and ranges from wealthy businessmen, politicians and elite hedge funds to the United States Government and Federal Reserve Bank.

Fri, 07/13/2012 - 16:07 | 2614302 jayman21
jayman21's picture

Nice way to start the weekend.  LOL +1


Fri, 07/13/2012 - 16:12 | 2614317 Dr. Richard Head
Dr. Richard Head's picture

By prestigious I assume you mean anal raping pillaging pirates with no moral compass or ability to have empathy.  Cock suckers who would kill their own mother and sell her kidney's to keep a lie floating.  Control freak ass munchers who have only succeeded through fraud, deceit, lies, and the financial murder of those foolish enough to trust them.

Is that what you meant?


Fri, 07/13/2012 - 16:36 | 2614410 pashley1411
pashley1411's picture

JPM dildo.

Fri, 07/13/2012 - 16:49 | 2614470 Dr. Richard Head
Dr. Richard Head's picture

Chances are a JPM Dildo is faux silver colored and paper mache.

Fri, 07/13/2012 - 17:43 | 2614616 Dr Benway
Dr Benway's picture

From the classic movie "Top Secret", here is the JPM Dildo, also known as the Anal Intruder. It will electrify you!



Fri, 07/13/2012 - 17:01 | 2614515 Silver Alert
Silver Alert's picture

Don't forget drug lords, various tyrants, illegal immigrants & welfare ECB card holders.

Fri, 07/13/2012 - 20:44 | 2614928 mick68
mick68's picture

Milliondollar is one of Dimon's illegitimate children, a buck per post isn't bad compared to what the other kids get paid.

Sat, 07/14/2012 - 03:00 | 2615307 eatthebanksters
eatthebanksters's picture

MDB, you are absolutely the best! You fit right in with your pals Barry O and Larry S!  You know there is one kryptonite dart theat negates Fed QE inflation...is actually guarantees a form of deflation and I can almost affirm with certainty that the growing supply will spill over soon for the likes of yu and your friends...it's copper jacketed lead and it drops anything on impact.

Mon, 07/16/2012 - 20:18 | 2622326 MeelionDollerBogus
MeelionDollerBogus's picture

World class robbery service? The poor are robbed from foodstampd by JP Morgan. MF Global customers are robbed by JP Morgan. Big bonuses will follow the biggest trading losers of the CIO and JP Morgan while shareholders suffer the losses.

That's world-class service?

JP Morgan is the mafia and so is the Morgan clientel.

Fri, 07/13/2012 - 16:09 | 2614305 williambanzai7
williambanzai7's picture


Fri, 07/13/2012 - 16:19 | 2614345 MsCreant
MsCreant's picture

So they do give a flying fuck?

Sat, 07/14/2012 - 12:19 | 2615772 AmericanFUPAcabra
AmericanFUPAcabra's picture

WB7 Sir, May i put in a request for an idea from the other thread. Bernanke's head on the Fonz, thumbing himself up. all hail Bondzi. Tap the machine just right and it starts printing! HEYYYYY

Fri, 07/13/2012 - 15:43 | 2614203 rcintc
rcintc's picture

From overdraft fees....you know, the little people

Fri, 07/13/2012 - 16:14 | 2614326 unwashedmass
unwashedmass's picture


nah, i think its going to be from absolute destroying the silver market with the help of the CTFC, and then buying up all the silver companies they've purposely bankrupted, then.......after replacing the "borrowed" metal at pennies on the dollar.....jacking the silver price to the moon. 



Fri, 07/13/2012 - 16:17 | 2614336 Doubleguns
Doubleguns's picture

Nice to see I am not alone in my fears.  Posted same time above.

Fri, 07/13/2012 - 16:46 | 2614456 OmigoshAmethyst
OmigoshAmethyst's picture

I can second this, my account with Chase (jp morgan) Mysteriously overdrafted a few days ago! It's time for me to move to a new banking company -_- ... $15 down the drain over what was said to be a .50 overdraft on my account.. .wth


Fri, 07/13/2012 - 18:03 | 2614657 Bob
Bob's picture

For chrissakes, move your account to a local institution where you can deal with real human beings. 

Fri, 07/13/2012 - 15:44 | 2614209 bob_dabolina
bob_dabolina's picture

Eitherway, see if you can guess which one the tax payer is:


Fri, 07/13/2012 - 16:37 | 2614406 gold-is-not-dead
gold-is-not-dead's picture

it's obvious, the inner spoon... :)

Fri, 07/13/2012 - 15:47 | 2614218 LouisDega
LouisDega's picture

Hmmm.. eliminating free cookie at local branches?

Fri, 07/13/2012 - 15:50 | 2614229 t_kAyk
t_kAyk's picture

All your free pens are belong to us!! 

Fri, 07/13/2012 - 15:51 | 2614240 Dr. Engali
Dr. Engali's picture

I guess I'm not getting a free spiderman towel any time soon.

Fri, 07/13/2012 - 15:53 | 2614250 Poetic injustice
Poetic injustice's picture

Or eliminating free coke for managers? Nah, not gonna happen.

Fri, 07/13/2012 - 15:47 | 2614219 TooBearish
TooBearish's picture

Take the shortfall from loan loss provisions...no worries...gap filled

Fri, 07/13/2012 - 15:53 | 2614252 Tyler Durden
Tyler Durden's picture

Nope. Loan Loss Reserves are now back to December 2008 levels, or just after Lehman failed. At this point releasing any more "losses" is virtually impossible unless the US economy is growing at 4%.

Fri, 07/13/2012 - 16:09 | 2614307 I Am The Unknow...
I Am The Unknown Comic's picture

Thanks Tyler, I think I'm going to print that chart out and put it on my refrigerator.  My goodness look at the trendline...

Fri, 07/13/2012 - 16:14 | 2614328 Dr. Richard Head
Dr. Richard Head's picture

"We're going to need a bigger whale!" - Jamie "I'll Rape My Mom for a Naked CDS" Dimon

Fri, 07/13/2012 - 16:28 | 2614377 I Am The Unknow...
I Am The Unknown Comic's picture

Yep!  What will they think of next!?!?

This is going to be fun to watch as the statutes of limitations (which varies state by state) has begun to run out for them on collection of defaulted consumer credit.  The earliest, I think, is Washington DC at 3 years.  So for example if somebody in DC hasn't made a credit card payment since Sept 2008, JPM Chase has long ago lost the ability to collect in court.  As more people drop off the extended unemployment benefits, default on their credit cards, and more time passes, I look forward to watching nonperforming loans at JPM Chase increase as they struggle to maintain loan loss reserves, especially now with the CIO desk gone.  Deleveraging here we come!  Unless, of course, Dr. Dick Head, they do indeed come up with a bigger whale. I wonder what it will be....NIRP for all???

Fri, 07/13/2012 - 16:35 | 2614405 Dr. Richard Head
Dr. Richard Head's picture

Bring on the inflationary collapse.  I sometimes call the Cleveland Federal Reserve Bank and ask for the discount window.  The call goes like this -

Me - Discount window operations please.

Fed - One moment.

Fed - Hello this is Maggie!

Me - Yeah Hi Maggies.  I just shit into a nice two-ply plastic bag and was wondering if the discount window is still open for collateral.  I was hoping to securitize this, toss that security into either a pension fund or muni bond, take those funds to buy some negative yield bonds, and keep the profit.


Me - hello?  hello?  You did it for Jamie Dimon.

Fed - Sir, please stop calling.

Fri, 07/13/2012 - 16:50 | 2614472 Totentänzerlied
Totentänzerlied's picture

"I sometimes call the Cleveland Federal Reserve Bank and ask for the discount window."


Fri, 07/13/2012 - 16:54 | 2614496 Dr. Richard Head
Dr. Richard Head's picture


Fri, 07/13/2012 - 18:06 | 2614667 Bob
Bob's picture


Fri, 07/13/2012 - 16:15 | 2614330 Omen IV
Omen IV's picture

that's not the half of it - loan loss reserves are $24 billion - the equity is $130 billion and the second mortgage portfolio (performing?) is over $85 Billion (not yet written down) - if the seconds are performing because they are paying interest only - for each $100,000 at 1% would be roughly $100.00 per month for the average home owner - not hard to do with a job for now - but the collateral "was" underwater 3 years ago by at least 40-50% or more of the portfolio - and probably much higher - then the $100.00 ability to pay per month - controls the wipe out of the equity in substantial part and the operations side of the Bank is the only generator of profits for how long?

Fri, 07/13/2012 - 22:51 | 2615121 Cosimo de Medici
Cosimo de Medici's picture

Oh ye of little faith!

The level of loan loss reserves is immaterial, as having even one dollar is completely unnecessary for a Certified TBTF.  Losses?  Those are for the little people.  Sure, Dimon faced a hiccup in the London office, but those Limeys don't appreciate how essential immunity from loss is for TBTFs, which is why their economy is in the crapper, by the way.  And look who takes the fall for that loss...a trio of foreigners, one of whom is actually a Greek.  That says about all that is necessary.  A Greek.  Nobody's going to shed a tear for that.

Thus, JPM has another pile set aside for rainy days that cannot possibly come, a pile that can be used to smooth earnings for as long as any HFT bot or benchmarked fund manager cares to pay attention.  And when those run out?  Mergers and acquisitions, baby!  Jamie is thinking of buying Dexia, maybe BBVA....and then there's all that flotsam and jetsam in Ireland and Greece.  The possibilities are endless.

And at some future debt, when all the fat has been rendered and the bonuses accrued in vested stock, Jamie goes all public service, maybe at Treasury, a move that would allow him to cash out his bonus haul without the irritant of taxes.

When the glass is always half full, the drinks are on the house....or rather, all our houses.

Fri, 07/13/2012 - 23:16 | 2615157 FreedomGuy
FreedomGuy's picture

I always say that the true test of expertise is not explaining the past but accurately predicting the future...especially more than once. My hat is off to you for more accurately estimating the true losses. Wel done.

Fri, 07/13/2012 - 15:49 | 2614225 Agent P
Agent P's picture

My guess is the CIO function will continue to reside somewhere else within the bank under a different name for that very reason.  You never kill the golden goose, you just call it a duck.

Fri, 07/13/2012 - 15:49 | 2614230 Dr. Engali
Dr. Engali's picture

My guess is the kids aren't getting a lolly pop  at the drive though.

Fri, 07/13/2012 - 15:52 | 2614246 t_kAyk
t_kAyk's picture

... and no biscuit for Fido

Fri, 07/13/2012 - 16:05 | 2614298 Agent P
Agent P's picture

I can pull up to the ATM on a Sunday and my kids start asking me if they can have a lollypop...they're like Pavlov's dog when they see the bank.

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