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 - 16:21 | 2614356 MsCreant
MsCreant's picture

Suckers... hmmm...

Sat, 07/14/2012 - 12:52 | 2615872 Tijuana Donkey Show
Tijuana Donkey Show's picture

Ever notice how banks only give out dum-dum suckers to clients?

Fri, 07/13/2012 - 15:51 | 2614236 Debtless
Debtless's picture

From me. And you. And from the guy above me. From the guy below me. And below him. And above them. And so on. And so on. And so on.

Fucking criminals.

Fri, 07/13/2012 - 16:43 | 2614361 MsCreant
MsCreant's picture

You're very clever young man, but it's no use, it's muppets, all the way down...

Fri, 07/13/2012 - 15:53 | 2614253 Marginal Call
Marginal Call's picture

They'll just need to come up with a new internal group and start over while maintaining the original CIO group operating in a conservative fashion. 

Fri, 07/13/2012 - 15:55 | 2614256 Aunty Christ
Aunty Christ's picture

between 20% and 30% of profits based on fictious marks?

Fri, 07/13/2012 - 15:56 | 2614258 LeBalance
LeBalance's picture

a question that I have is how much of the CIO share and how much of JPM's total income is just a scam?  what if (like the BLS and DJ, etc) their numbers are just part of the silver screen of illusion?

what if it is "too imprortant not to be entralled by the Matrix?"

we know the carmakers numbers are cooked.

china's numbers are cooked.

why do we look at the "masters" (my name is masters, blythe masters) as being any different?

To the contrary, as I got closer and closer to association with the City (London/Vatican/etc) I would exhibit heightened "raise eyebrow" (not logical, Captain) stance and BS sniffer on maximum.

so per the question of "where is JPM" (or any TBTF) going to come up with performance?"

same place the dollar comes from.

same place.

Fri, 07/13/2012 - 16:26 | 2614371 MsCreant
MsCreant's picture

I live in this head space you describe. I take it for granted. I wonder why I don't go mad? How are you doing with it? 

Fri, 07/13/2012 - 16:46 | 2614434 LeBalance
LeBalance's picture

I do not wish to walk into their "reduced degree of freedom" piece of paper future.  So I am trying to find my own.  First step is noticing that everything is bullshit.  Every last item was created from MIC research, so the vibrancy of this place's experience is non-existent.  This is such a weak zone and therefore we are the merest shadow of what we could be.  Maybe this is so the "crib" area, but I aspire to something else.  Not ready for it yet or I would not be here, but I aspire.  /lol/

i recommend wellaware1.com as a paper reality destroyer.  It destroys Max and Stacy and by association others.

plus i do not grasp at anything as real.  nothing is solid.

it is not madness, it is gladness.

explore the vibrancy within.  I recommend meditation.  TM is nice.

Fri, 07/13/2012 - 16:47 | 2614460 Cheesy Bastard
Cheesy Bastard's picture

We are on the same path, my friend.  I am trying to reduce my dependency on technology, and do many more things by hand, such as split wood and till soil.  One part of my mindset, though, is to have any nagging injuries or minor surgeries tended to now, while I can.  If I am laid up for a few days, certainly a little zerohedge couldn't hurt, could it?

Fri, 07/13/2012 - 18:56 | 2614769 Pi'd Piper
Pi'd Piper's picture

I come from a place where a large portion of the population (10-15%) practice TM. Many of the people who practice it exhibit signs of mental illness. I've met a woman who 'Has conversations with aliens." She does not call them "extraterrestrials" she calls them "Otherterrestrials." One of my friend's mother screams in her sleep. Every night. I've heard her. My sister knows a woman who is "allergic to electricity"- yet when she goes to wal-mart she uses the electric scooters. The german government, the vatican, the cult awareness network among other professional organizations have put out warnings about practicing meditation. To quote from an article "a study by Germany's Institute for Youth and Society found that 76% of long-term meditators experience psychological problems.  They noted that 26% had nervous breakdowns, 63% experienced serious physical complaints, and 70% reported a worsening ability to concentrate.  There have been ten independent studies which have validated the adverse effect of long-term TM practices which provide additional confirmation to these conclusions." 


My Step-Father's church did some research at a local mental institution and found that a majority of the people that were imported from other towns came from my hometown.


It isn't madness, but it may lead to it.

Sat, 07/14/2012 - 00:05 | 2615206 Iwanttoknow
Iwanttoknow's picture

Beg to differ.There is a lot of material showing benefits of meditations.Your evidence is anecdotal.

Sat, 07/14/2012 - 05:15 | 2615354 Escapeclaws
Escapeclaws's picture

I looked at that site wellaware1.com and I'm not convinced because many of the people he claims to be the same person in different guises look alike, but there is no way to tell if they are identical. In many cases the ressemblance is not so obvious. He also makes the claim that Obama is in fact Osama bin Laden. (Switching the letters b and s--bs) Intriguing, but far from likely. Two possibilities: I may be the one who lacks the discernment to tell if it is the same person in a different guise or he may be overrating his own ability to discern the same thing.  Some of his catches, for minor unknown actors working for the Weiss agency do fit his hypothesis, but others--particularly famous people, are problematic. I did like his debunking of the Disclosure Project. This site does make you wonder how extensive the Matrix is.

Fri, 07/13/2012 - 16:45 | 2614453 Sweet Chicken
Sweet Chicken's picture

Leffe blonde :)

Fri, 07/13/2012 - 15:58 | 2614270 Meesohaawnee
Meesohaawnee's picture

same thing was said obout QE... you just rebrand it and call it Operation Twist.Same looting, Same result. BTW thats where the 25 will come from since its the greatest wealth transformation mechanism from the middle class to the wealthy... is there a question?

Fri, 07/13/2012 - 15:58 | 2614274 Apocalicious
Apocalicious's picture

Gone? Just wait next quarter for the profits from the flow desk, or no, that's too obvious, financial strategies desk, wait, scratch that. Just wait until next quarter's large unexplainable profit center emerges that wasn't there previously.

Fri, 07/13/2012 - 15:59 | 2614275 hangemhigh77
hangemhigh77's picture

Easy, VAPORIZATION of customer accounts.  

Fri, 07/13/2012 - 16:02 | 2614286 SheepDog-One
SheepDog-One's picture

Corzine em....there, done.

Fri, 07/13/2012 - 16:27 | 2614370 Dr. Engali
Dr. Engali's picture

I think vaporizatiin contributes to cash flow not to the bottom-line. But I guess It depends on the accounting rules on that particular day.

Fri, 07/13/2012 - 16:47 | 2614462 LeBalance
LeBalance's picture

.....rules? /hahahahahahahahahahahahahahahaha/

Fri, 07/13/2012 - 15:59 | 2614276 El Oregonian
El Oregonian's picture

Doesn't he have one of those Fed printing presses down in the basement?

Fri, 07/13/2012 - 16:01 | 2614284 hangemhigh77
hangemhigh77's picture

Jamie will have to sell his golden toilet he bought from Thaine

Fri, 07/13/2012 - 16:02 | 2614287 Hannibal
Hannibal's picture

"Where will JPM's 25% net income come from?"....as usual, steal it!

Fri, 07/13/2012 - 16:03 | 2614292 jonan
jonan's picture

good laughs if you read the average VaR line...

Fri, 07/13/2012 - 16:08 | 2614303 Cheesy Bastard
Cheesy Bastard's picture

Jamie, here is how to solve your quandry.  Start here:  "I have committed fraud.  For this I feel constant and intense guilt.  I am very remorseful that my greatest transgressions have been to my fellow man..." 

Fri, 07/13/2012 - 16:27 | 2614375 MsCreant
MsCreant's picture

Cheesy, we gotta offer to help with the gun too...

Fri, 07/13/2012 - 16:42 | 2614435 Cheesy Bastard
Cheesy Bastard's picture

Yes Ms.  There will be no shortage of volunteers in that department, I think.  No leaky hoses from the tailpipe to the Chrysler for him.  Jamie doesn't know the meaning of the word failure.

Fri, 07/13/2012 - 23:44 | 2615182 Dr. Richard Head
Dr. Richard Head's picture

Funny thing is that I get shaken down for $135 for dark window tinting and lack of front plate in the name of the state serving and protecting, yet JP "Cock gobbler" Dimon takes billions in the name of theft.  Welcome to ORwell's threesome of cum guzzling whores.  He could never have had an organism of what today's bizarro world is.



Fri, 07/13/2012 - 16:12 | 2614313 slackrabbit
slackrabbit's picture

And in the the news tonight: In Londons SOHO a silver haired banker was pulling tricks to meet capitial requirements and ensure quarterly earnings ...

Fri, 07/13/2012 - 16:17 | 2614337 Jena
Jena's picture

25 cents at a time...

Fri, 07/13/2012 - 16:25 | 2614366 Swarmee
Swarmee's picture

Hah! The true 'whale trade': You can sleep with 16 billion pretty women for $0.25 each, or one massively fat ugly woman for $4 billion!



Fri, 07/13/2012 - 16:29 | 2614380 MsCreant
MsCreant's picture

Funny as a bankster in jail!! ++++

Fri, 07/13/2012 - 16:12 | 2614320 yrad
yrad's picture

They will fill the hole with more, different, better fraud! duh

Fri, 07/13/2012 - 16:12 | 2614322 vas deferens
vas deferens's picture


JPM's "Code or Conduct"                  

Our integrity and reputation depend on our ability to do the right thing, even when it’s not the easy thing. The Code of Conduct is a collection of rules and policy statements intended to assist employees and directors in making decisions about their conduct in relation to the firm's business. The Code is based on our fundamental understanding that no one at JPMorgan Chase should ever sacrifice integrity -- or give the impression that they have -- even if they think it would help the firm's business.


source: http://www.jpmorganchase.com/corporate/About-JPMC/code-of-conduct.htm



Fri, 07/13/2012 - 18:16 | 2614694 smiler03
smiler03's picture

+100 Excellent!

Fri, 07/13/2012 - 16:14 | 2614325 CustomersMan
CustomersMan's picture


What if there are NO Profit Centers at all at JP Morgue?


Suppose all the paper work and filings are just for show, to cover an outright gift from the FED each Quarter, they would need to generate some fictitious trades and business activity to give the world the idea that it came from activity, when in fact it was just a "Digital Gift" from the FED.

Fri, 07/13/2012 - 16:30 | 2614389 MsCreant
MsCreant's picture

I'll bite, I have sort of wondered this myself. If this were the case, why would they have to announce bad trades in the first place?

Fri, 07/13/2012 - 16:14 | 2614327 EndGamed
EndGamed's picture



Fri, 07/13/2012 - 16:16 | 2614331 Sutton
Sutton's picture

Just steal from  segregated commodity accounts.

Fri, 07/13/2012 - 16:25 | 2614357 falak pema
falak pema's picture

JPM has lost its magic derivative wand!

How the king of derivative hubris ends up as the emperor's vizir without the power to manipulate; next step the gallows. If you can't deliver you lose your head, my vizir! Thats the rule of power! 

Fri, 07/13/2012 - 16:23 | 2614362 El
El's picture

Oh, I'm sure they have their next scam all lined up.

Fri, 07/13/2012 - 16:25 | 2614368 same old story
same old story's picture

Jamie, Blythe, etc don't give a fuck what we say and post about them.  the reality is they are incredibly rich, and will probably spend this weekend as they do all the others wining and dining on the best that money can buy.  Some of the members of this club own and keep an entire team of polo ponies, have homes filled with masterpieces costing mega millions, fly private, and so on.  They think they deserve it, and in no way do they feel threatened that they will pay for it and or lose their lifestyle.  I think for that to happen most of them agree they would have to be kill someone and even then only is the person was equally connected and/or they were caught on tape with the smoking gun - although even this they might be able to make vanish

Fri, 07/13/2012 - 16:25 | 2614369 disabledvet
disabledvet's picture

Obviously mr market isn't complaining about a blocking and tackling deficit...at least today. Just as obviously mr market understood the importance of this area as a profit center and priced it in accordingly.

Fri, 07/13/2012 - 16:31 | 2614391 falak pema
falak pema's picture

the king needs a new magicien; anybody, everybody has to come reassure the emperor he has his crown, his clothes, his orb and his crown jewels. The empire requires this homage to imperial power. Where are the levers of power, in this eleventh hour?


Fri, 07/13/2012 - 16:34 | 2614403 MsCreant
MsCreant's picture

They have done a stunning job of brainwashing us, I think. The levers of power cannot be readily seen but they are pulled and lifted constantly.

Sat, 07/14/2012 - 14:03 | 2616048 earleflorida
earleflorida's picture

hmmm... the eleventh hour?

something about that number eleven that gives me chills,...

Fri, 07/13/2012 - 16:39 | 2614420 catch edge ghost
catch edge ghost's picture


Fri, 07/13/2012 - 16:39 | 2614424 CVfriendship
CVfriendship's picture

So when do they do round two of M&A like in 08-09 so they can "add significant synergies that will go straight to our bottom line"...aka the reality show appearance fees they'll charge once Lloyd B and Jamie D have to share an office.....It's fulll proof!!! Seaside Heights has never been so profitable...why not the banks?!

Fri, 07/13/2012 - 16:44 | 2614445 sitenine
sitenine's picture

Never underestimate the power of fraud.

Fri, 07/13/2012 - 16:45 | 2614452 MedicalQuack
MedicalQuack's picture

Now their One Equity Partner division which I beleive absorbed some of the CIO folks is out investing in healthcare, a technology that competes with Nuance for speech recogntion and put out over a billion to take it private, deal is not finished yet of course and there's list of attorneys checking it out.


Unlike Allscripts fiasco a short while back I think they have all their integration code written.  It's taking longer these days as it gets more complex out there. 


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