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Is JPM Staring At Another $3 Billion Loss?

Tyler Durden's picture


"[The trading loss] plays right into the hands of a whole bunch of pundits...."


                                                         - Jamie Dimon

There are a lot of moving parts in the Dismal tale of Dimon's demise. The starting point is that Bruno Iksil in the JPMorgan CIO Office, under the premise of hedging the bank's credit portfolio's tail risk had placed various tranche trades (levered credit positions with various risk profiles) in the only liquid tranche market that still exists - CDX Series 9 (an 'orrible portfolio of credits with an initial maturity at the end of 2012). These positions were low cost  (steepeners or equity-mezz) but needed a certain amount of day to day care and maintenance (adjusting hedges and so on). As the market rallied, the positions required increasing amounts of protection be sold to maintain hedges (akin to buying into a rally more and more as it rises). His large size in the market left a mark however that hedge funds tried to fix - that was his index trading was making the index extremely rich (expensive) relative to intrinsics (fair-value).

This is the 10Y IG9 credit index (dark blue) and its fair-value (light blue) and the difference or skew (orange). What is clear is that the index remained massively rich to its fair-value through this period (red oval) and it was not until the last two months or so that the skew (red arrow) began to compress as perhaps Iksil got the nod and more and more people realized the arb...(or understood from where the technical pressure was coming in the index rallying)...

Hedge funds began to try to arb this position and got frustrated at the lack of convergence -  and this is how we initially got to hear about Bruno Iksil - the London Whale - since those funds suggested someone was 'cornering' the index market in credit.

Critically - this is akin to looking at the 500 names in the S&P 500 - weighting them and seeing the S&P 500 index should trade at 1200 but it is trading at 1400 so you sell the index 'knowing' that the index is mispriced - (this never occurs in stocks since they are instantly and everywhere arbed between the index and its components - but can occur in credit because of illiquidity or in this case flow - what we call 'technicals').

This was very evident when one looks at the net notional being soaked up by the Whale and this 'hedge' position had clearly grown extremely large as it became a momentum trade not a hedge (at which time we suspect Iksil started to lose control). In early April, as news of this broke across the market, the credit and equity markets were beginning to quiver again at European contagion and US macro data and as a proxy for the volatility JPM must have been feeling we can see very significant (2-3 sigma) swings in the credit index they held. This would more than likely have triggered a risk manager to come along and look over the trader's shoulder - suggesting humbly that he exit/hedge/don't panic.

This is IG9 10Y spreads (upper pane) and their rate of change (lower pane) - (h/t @swaptions for idea) and as is clear the 3-sigma multiple day move likely scared a few risk managers (and Iksil) into fessing up...

Evidence from the HY market suggests that the trader used more liquid on-the-run indices to hedge as the spread of the HY18 credit index blew notably wider relative to intrinsics and net notionals dropped modestly. The market calmed down a little and it appeared from net notionals and the index skews that he tried again last week to unwind some more of the huge position that had clearly tripped various risk limits and VaR controls. This is where we find ourselves now - the net notionals remain huge (and implicitly on JPM's shooulders), his lack of selling has left the credit index maybe 20bps rich to where it might trade given its rough correlation with the S&P 500 and this would imply at least $3bn of losses already in addition at fair-value.

As is evident, IG9 credit index and the S&P 500 have moved in a very correlated manner - and IG9 net notionals (the amount outstanding in IG9 CDS) has risen alongside these moves as JPM built a bigger and bigger longer and longer credit position. The red vertical arrow shows the current dislocation if one assumes the cessation of Iksil's unwind efforts stalled IG9's selloff - which is the $3bn loss that remains to be seen and the black dotted line is an indication of the kind of notional unwind that would occur - which with a market moving as it is - would be highly disjointing.

Of course, the situation is far worse because 1) any efforts to unwind such a huge position will lead to the market yawning wide and swallowing him in illiquid bid-ask spreads; and 2) the rest of the world knows their position - so why would the hedge funds not push their position. Perhaps this explains why JPMorgan's CDS has remained relatively wide while its exuberant stock price shot up on stress-test ebullience - only to plummet back to CDS reality this evening. Critically, JPM will need to use whatever method they can to hedge this now over-hedged and over-long position - which likely means credit instruments such as JNK, HYG, HY18, and IG18 will all get their share of strange attraction as the trader mispriced not just the basis risk (the volatility between the hedge and its underlying) but the attraction of running with a trend when you have a bottomless pit of money to cover it - until now.

It is already evident in the on-the-run liquid indices - HY18 for instance has exploded wider twice now - in line with the net notional reduction and hedging moves from JPM's IG9 position...

This chart somewhat relates to the IG9 skew chart above in that it represents how far above 'fair' the spread of the index trades relative to the underlying names - the spikes show that there was huge technical demand for the index protection relative to the underlying risk of the portfolio.

and perhaps there was already concern in the market with regard JPM's counterparty risk or exposure from hedgies' trades as CDS has been far less exuberant than stocks...


Of course noone knows for sure what exact positions Iksil had on - though it is clear what hedging he needed to do to manage his hedges. As Peter Tchir ( @TFMkts ) noted this evening - perhaps this mark-to-model irregularity is what the Fed discovered and gathered all the banks last week to ascertain just who has what exposure to whom? As we tweeted earlier, perhaps Iksil just got carried away - and please understand that while CDS do indeed provide leverage, so do many other financial instruments - it is not the instrument that caused this - it is the trader as "you don't hedge risk when you bet on momentum continuing you idiot!"

Addendum - VaR is almost entirely useless as a risk statistic in regard to the kind of highly non-linear positions that we are talking about here and so the doubling of JPM's VaR suggests the tail-risk (or conditional VaR) is considerably larger.


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Thu, 05/10/2012 - 22:29 | Link to Comment JackT
JackT's picture

maybe they have some puts in place to help recoup?  Naaaa...they wouldn't do something like that would they?  

Thu, 05/10/2012 - 22:25 | Link to Comment Sequitur
Sequitur's picture

Just remember Jamie, neither you nor any JPM executive intended to violate the securities laws. Say it ten times. Touch yourself gently. Then have a cookie.

Defense lawyer memory sanitization begins at 8:30 a.m. tomorrow. Night night.

- John Corzine

Fri, 05/11/2012 - 01:59 | Link to Comment Problem Is
Problem Is's picture

Jamie... Channel your inner Corz...

Thu, 05/10/2012 - 22:25 | Link to Comment Garristotle
Garristotle's picture

Shine on, you crazy Dimon.

Thu, 05/10/2012 - 22:45 | Link to Comment sumo
sumo's picture

I hope he bleeds non-stop from every orifice.

Thu, 05/10/2012 - 23:57 | Link to Comment Cynthia
Cynthia's picture

You forgot to add the link to it:



Thu, 05/10/2012 - 22:33 | Link to Comment GS-DickinDaMuppets
GS-DickinDaMuppets's picture

Does anyone remember where I laid down the keys to my new Yacht? It was a gift from the taxpayers and I have not had a chance to make a run in it yet.  I think Jamie and I will make a quick trip to Belize tomorrow if I can find where I put the keys.

Relax everyone, Lloyd.


...doing GOD's work...GS-DickinDaMuppets

Thu, 05/10/2012 - 22:58 | Link to Comment Firing Pin
Firing Pin's picture

Happy sailing. You see, that is what happened to JPM here. Since Goldman is doing "God's Work" (and providing jobs for 10,000 women...nice PR stunt by the clowns at GS), this is why tragedy befell JPM. Maybe JPM should focus less on being a vampire squid and being more altruistic like GS.  

Thu, 05/10/2012 - 22:34 | Link to Comment zerotohero
zerotohero's picture


Thu, 05/10/2012 - 22:37 | Link to Comment chump666
chump666's picture

Asia going all USD bids again = risk aversion

0223 GMT [Dow Jones] The USD/CNH, or offshore USD/CNY, rises to 6.3165, from 6.3125 late Thursday in Asia, tracking a higher onshore USD/CNY, says a senior trader at a U.S. bank. "The USD/CNH is likely to keep an upward bias amid the uncertainty in Greece.

Greece? haha, try JPM blowout and Spain yields blowing out in the next 6hrs. 

Thu, 05/10/2012 - 22:40 | Link to Comment disabledvet
disabledvet's picture

To me it's not about the what but the where. I mean "London again?" This is EXACTLY what happened at AIG--"a little special operations group for the CEO to stay in the game." And now "you're backed into a corner" and "blah-blee-blah" and shit. Amazingly "as with Roy Lichtenstein at AIG" Jamie "didn't see it coming either." I'm sure it's one of those instances of "WE BETTER GET TO THE BOTTOM OF THIS PEOPLE" as you plumb the depths of "the hole of my undoing." ENTER THE HUMORIST JAMIE! THAT HUMORIST IS YOU!

Thu, 05/10/2012 - 22:40 | Link to Comment kato
kato's picture

Another nice ZH writeup on the not-so-easy-to-ferret-out that is available only from ZH. Much appreciated.

Thu, 05/10/2012 - 22:50 | Link to Comment khakuda
khakuda's picture

Seriously, this is an outstanding analysis. I'm a fucking idiot and even I understood enough of it to make me feel less of an idiot. That said, I'm still really dumb.

Fri, 05/11/2012 - 00:09 | Link to Comment vamoose1
vamoose1's picture

tyler  for  president,     i mean really

Thu, 05/10/2012 - 22:42 | Link to Comment Dead Canary
Dead Canary's picture

I smell gas and I'm getting a little dizzy.

Thu, 05/10/2012 - 22:42 | Link to Comment Jim in MN
Jim in MN's picture

Perhaps a nice Friday morning Federal raid of JPM's offices, complete with real time Dimon and other corporate officers hard drives being mirrored onto the Internet for all of us to examine would add some transparency and stability to these "oh-so-important markets".

Thu, 05/10/2012 - 22:43 | Link to Comment Bastiat
Bastiat's picture

Jamie to Bernanke:  We'll just have to cover our commodity shorts . . .   in other words:

Thu, 05/10/2012 - 22:47 | Link to Comment junkyardjack
junkyardjack's picture

At what price should we be looking to go long?

Thu, 05/10/2012 - 22:56 | Link to Comment realtick
realtick's picture

Some potential for a bounce @ $25 neckline support:

That's $13 below the current after hours price.

Most likely it will slice right through the multiiyear neckline so I wouldn't get your hopes up.

Thu, 05/10/2012 - 22:55 | Link to Comment Firing Pin
Firing Pin's picture

Tyler, thank you for the explanation of JPM's problem trade...very interesting. So if most everyone here assumes JPM acts as the Fed's henchman to stifle gold and silver, might their attention be distracted from this endeavor for awhile? Also, assuming that this could get worse, it probably triggers QE sooner than most people think. 

Thu, 05/10/2012 - 23:00 | Link to Comment unemployed
unemployed's picture

Check out that 3 month VaR reset coming soon to a Ponzi near you.   Oh wait did I have an IRA at Dean Witter?

Thu, 05/10/2012 - 23:00 | Link to Comment palmereldritch
palmereldritch's picture

Tomorrow is the 11th.  Should be an interesting day.

Thu, 05/10/2012 - 23:01 | Link to Comment Westcoastliberal
Westcoastliberal's picture

This is SO fuckin' beautyful!  And wasn't Dimon on his soapbox just last week sayin' how people shouldn't be 'dissing the banksters because they're doing such a GREAT JOB! This made my fucking night!

Thu, 05/10/2012 - 23:04 | Link to Comment Amish Hacker
Amish Hacker's picture

So does the $2 billion (or $5 billion, or whatever) represent a gain to some JPM counterparty, or did that money just "vaporize" into derivative money heaven?

JPM's market cap is $155 billion, so this loss seems like pretty small beer, unless the whole banking sector is in such a precarious state that it can't withstand a little CDS hiccup. It certainly seems possible that we're going to see further confessions from JPM in the days ahead, and maybe even cascading defaults from some of the downstream dominos, as "notional" value becomes all too real.


Thu, 05/10/2012 - 23:27 | Link to Comment a growing concern
a growing concern's picture

Yeah, I'm having trouble figuring out what the BFD is.  That "rogue trader" lost what, over a billion, not too long ago, and society didn't collapse from that.  Now don't get me wrong, I'd like nothing more than to see some bastards get their comeuppance, but I can't figure out how this affects anyone but some poor scapegoat at the trade desk that they'll pin this whole clusterfuck on.  Sucks for him, but I'm sure his new Lamborghini will be some consolation at his newfound lack of a job.

Fri, 05/11/2012 - 00:19 | Link to Comment JLee2027
JLee2027's picture

Lehman Brothers lost a couple billion and it turned a 500 billion dollar bankruptcy.'s all borrowed money.  All these "bets" or trades are leveraged to 20x or 30x or 100x.  To have a sudden conference call indicates panic. They don't have control, they can't unwind the position and the losses can keep growing.

Fri, 05/11/2012 - 03:54 | Link to Comment CuttingEdge
CuttingEdge's picture

Besides which, with their position exposed, and with no way out, JPM will be taking it up the arse from the counterparties over coming hours and days - €2b will seem small beer when the dust settles.

Fri, 05/11/2012 - 09:07 | Link to Comment a growing concern
a growing concern's picture

Thanks. Will be fun to watch.

Thu, 05/10/2012 - 23:07 | Link to Comment Elmer Fudd
Elmer Fudd's picture

Does this mean JPM isn't going to cover their PM shorts? 

Thu, 05/10/2012 - 23:15 | Link to Comment ebworthen
ebworthen's picture

There are still sharks in the oceans who will circle this pool of blood and flesh.

Thu, 05/10/2012 - 23:18 | Link to Comment bnbdnb
bnbdnb's picture

If I got this right, does this mean that hedge funds will be the predators they are and make it worse for JPM?

Thu, 05/10/2012 - 23:24 | Link to Comment valkir
valkir's picture

I smell pattern.Second week some news on thursdays.Eh,why tomorrow wasnot friday the 13.....

Thu, 05/10/2012 - 23:23 | Link to Comment I Am The Unknow...
I Am The Unknown Comic's picture

Tyler I wish you would do your homework like CNBS before you go about posting all this technical gobbledegook.  You know us Muppet folk can't understand anything at all about investing, or risk, or hedging, etc.  Jamie Demon is a hero for holding an urgent conference call after hours on a Thursday and reassuring us all that this is nothing but a simple and isolated incident of sloppiness.  

Here is Brian Williams once again doing your job the way you're supposed to be doing it:

Now get on board with the program before you scare us simple folk

(all of the above is total sarc - Tyler and ZH, I am immensely impressed with your work overall, and on this piece in particular.  Fan-freaking-tastic job well done.  My hat off to you!)

Thu, 05/10/2012 - 23:26 | Link to Comment a growing concern
a growing concern's picture

Couldn't they have just hedged their position by buying a shit-ton of JPM puts right before their news conference?  It's not like the SEC would have investigated that trade.  So why not go for it, and you may even turn a profit on the deal.

Fri, 05/11/2012 - 00:03 | Link to Comment I Am The Unknow...
I Am The Unknown Comic's picture

...well that could explain The Bearshankme's comments today that the banks are "healing" would make the puts cheaper....just sayin'

You know, trying to make sense of these banksters is like trying to get inside the head of a career criminal....bottomline is that we decent people simply don't think like they do.  We don't wake up every morning wondering how we can defraud the world on a grand ($ billions) scale .  I wonder how much better the banking industry, the nation, and the world would be if they devoted the same amount of time and effort they expend on their criminal enterprises to investing in small businesses instead.  You know...that old, crazy, outdated concept of loaning money to hard working people with interesting ideas that might or might not make it and could even result in job and wealth creation.....

listen to me...ain't I such a silly old man

Thu, 05/10/2012 - 23:29 | Link to Comment bankonzhongguo
bankonzhongguo's picture

It just goes to show that if the regulators are not allowed to do their jobs, the police cannot arrest anyone, to co-located HFT machines run on the pico second, the congress does not reinstate some sounder practices in this gamed "market" then incidents like this will come again and again.

You ask about Black Swans.

Wait until a Rothschild, the Russians or the Chinese are on the other side of the next "dilemma."  The next Soros/BOE is waiting in the ether.

With Basel III the blood will be in the frenzied water as the nets are hauled in.

Karma kills.

Thu, 05/10/2012 - 23:32 | Link to Comment RiverRoad
RiverRoad's picture

Hmmmm, all this is starting to come together now as to why T. Rowe Price suddenly and with very little warning closed their huge High Yield Corporate Bond fund to new investors last month.....

Thu, 05/10/2012 - 23:33 | Link to Comment Elliott Eldrich
Elliott Eldrich's picture

I sense a great disturbance in the financial Force, the sound of trillions of dollars in derivatives screaming in terror as they face wholesale, mindless destruction...

Fri, 05/11/2012 - 00:10 | Link to Comment BidnessMan
BidnessMan's picture

May the Fourth be with You - Star Wars day - was about when all this started unraveling.  Coincidence ???

Fri, 05/11/2012 - 08:01 | Link to Comment Liquid Courage
Liquid Courage's picture

Ahhh, JaDim ... I thought I recognized your foul stench ... the more you tighten your grip, the more billions will slip through your fingers.

Thu, 05/10/2012 - 23:42 | Link to Comment pragmatic hobo
pragmatic hobo's picture

there was ~15000 in-the-money put options that expire tomorrow traded today. Just a coincidence, right?

Thu, 05/10/2012 - 23:49 | Link to Comment Dead Canary
Dead Canary's picture

It's getting dark.... and.... I feel so cold....... I see, I see grandma.... and Elvis.

Thu, 05/10/2012 - 23:50 | Link to Comment ReactionToClose...
ReactionToClosedMinds's picture

From what I've seen ... only fox & Fox Business are giving this any attention (Lou Dobbs siad they called Fed, UStreas & NYFEd but no one would talk)


Evidently folks don;t understand the mark-to-market concept ...nor the leverage toxicity of synthetic credit derivatives ... combined with the fact that JPM is one of THE largest market makers.

Mark-to-market has validity when you have a 'market' typical daily buyers & sellers.  Many small stocks do not .... but they are more of an episodic market.  But derivatives ...  well that is why AIG HAD to be SAVED.  And AIG had to be saved because despite the fact that Sec Trsy Paulson wanted Lehman to fail as their were no bidders or Fuld was a dickhead as a negotiator not understanding the 'glory' had ended.  The issue that caught everyone unawares was the oldest of the 'money market' funds,  Prime Money market fund, held a bunch of Lehman notes and so threatened the entire 'money market' system because they could not hold 'the buck (the $1 conversion level established as a convention for fund shares commonplace through these funds) ... which is defacto & unregulated 'savings' in the USA.  For 3-4 weeks Paulson had to scramble and convince Pelosi & Ried, that they might hate him and Bush et al but they faced a massive liquidity crunch unless they acted ... the deep abyss.  There was no choice then.  oh there were plenty of errors that stretch back to LBJ/Nixon/FordCarter.  This time ... post Dodd-Frank no less (Dodd is as corrupt as they come) ... this happens .... at the last remaining 'well-run' USA bank?

Where is the news media?  Covering the slaughter of innocents from MF Global I'm sure ..... no they cannot get enough of gay marriage


Thu, 05/10/2012 - 23:50 | Link to Comment Cyclerider
Cyclerider's picture

Schadenfreude returns like a carrier pigeon.

Thu, 05/10/2012 - 23:51 | Link to Comment alfred b.
alfred b.'s picture


   Sign on Eric Holder's door:   DO NOT DISTURB!



Fri, 05/11/2012 - 00:12 | Link to Comment luckylogger
luckylogger's picture

No fuking doubet they just pay off the right whore and go on........... when will it stop?????????????

those fukers are doing this on our dime in the name of "stability"...... the fukers should hang.... It may come..... It is getting to the poiont that people or sheeple will nopt put up with it..................

Fri, 05/11/2012 - 00:11 | Link to Comment luckylogger
luckylogger's picture

No fuking doubet they just pay off the right whore and go on........... when will it stop?????????????

those fukers are doing this on our dime in the name of "stability"...... the fukers should hang.... It may come..... It is getting to the poiont that people or sheeple will nopt put up with it..................

Thu, 05/10/2012 - 23:52 | Link to Comment hadriansnightmare
hadriansnightmare's picture

Gonna wait for silver to get crushed if the huge margin calls go out-  Been keeping dry powder for awhile now.  The metals will get smacked with everything else until the paper clears.  We have a long way to go.

Fri, 05/11/2012 - 00:04 | Link to Comment medicalstudent
medicalstudent's picture

$36 on ebay


charted price tells one story, but not the whole story.

Thu, 05/10/2012 - 23:54 | Link to Comment jackinrichmond
jackinrichmond's picture

good time for china to get the price of silver up..  expose jpm's big short

Fri, 05/11/2012 - 00:07 | Link to Comment luckylogger
luckylogger's picture

Good morning everybody........... Apparently we as in Mr Jamie Dimon does not need any regualtion as he hgas everything under control............... How many people is he ghoing to have to fuk to make up for this................ Hidden fees just went up 50%..........Why are they in business.......... they should be hung......they have no right to go on.......WTF????????????????

Fri, 05/11/2012 - 00:07 | Link to Comment luckylogger
luckylogger's picture

Good morning everybody........... Apparently we as in Mr Jamie Dimon does not need any regualtion as he hgas everything under control............... How many people is he ghoing to have to fuk to make up for this................ Hidden fees just went up 50%..........Why are they in business.......... they should be hung......they have no right to go on.......WTF????????????????

Fri, 05/11/2012 - 00:12 | Link to Comment Elliott Eldrich
Elliott Eldrich's picture

I just thought of what Zero Hedge needs to come up with, so that average people can understand some smidge of what is going on here.

Just as the atomic scientists came up with the "doomsday clock" we need to create the "Financial Doomsday Clock" and every time something like this happens then Tyler et. al. can hold some kind of press event and move the minute hand closer to midnight, while using the opportunity to explain to Joe and Jill Sixpack just exactly how and why they are doomed...

Fri, 05/11/2012 - 00:22 | Link to Comment phungus_mungus
phungus_mungus's picture

What's te point of any clck when we all knw it's really 5 past midnight already...

Fri, 05/11/2012 - 02:33 | Link to Comment Ineverslice
Ineverslice's picture

Yes...Extended time.  Play to the whistle!

Fri, 05/11/2012 - 00:20 | Link to Comment Walt D.
Walt D.'s picture

All of this could have been avoided if we just had more switches for the SEC and other Regulators to be asleep at.

Fri, 05/11/2012 - 00:20 | Link to Comment phungus_mungus
phungus_mungus's picture

Silence and no comments from the FED et al, Jamie growing mad on te call with those asking what else was out there...

Yeah, this ain't the bottom, there is more coming. Jamie and The Ben Bernank know it...

I still believe this shit was leaked, Jamie had no intention of telling the world until Friday PM...

Brace for impact.

Fri, 05/11/2012 - 01:41 | Link to Comment Sequitur
Sequitur's picture

Oh, there were comments. Why, just this morning Ben Shalom Bernake said banks were healing and said banking "conditions" have improved "significantly."

Verbal equivalent of putting grenade in mouth and pulling pin.

Fri, 05/11/2012 - 01:05 | Link to Comment walküre
walküre's picture

The hedgies are gonna take JP down.

This is the "Michael Douglas" moment in "Wall Street, The money never sleeps".

He got fucked first, then he fucked back.

It's not about the money, it's a game.

Fucking unreal. Art imitating life or the other way around?


Fri, 05/11/2012 - 01:13 | Link to Comment postafoa02
postafoa02's picture

Still in the asylum, though they allow me to walk around by myself close to the hospital area for 2 hours a day. Trying to get early retirement so i can get back atleast a fraction of what i've paid to the thieves in my life. hi turd.keep up the good work, i'd have a custom sharpie made of electrum sent to you. Don't worry peeps it's just a question of a critical mass of ppl waking from the bad dream, millions are opening their little eyes each day.. Greetings, Nemesis Nomos / After a friend of Another

Fri, 05/11/2012 - 01:13 | Link to Comment tony bonn
tony bonn's picture

i guess the lord's business was put on hold to do satan's.......

jpm will be bailed out - it all good baby....

Fri, 05/11/2012 - 01:28 | Link to Comment Body of Lies
Body of Lies's picture

The three billion loss is JPM's ... that is a flat out lie .... It is ours the taxpayer, via re-capitalization through the FED (just wait and see)

Fri, 05/11/2012 - 01:31 | Link to Comment cdude
cdude's picture

Hey Jamie, where is that  "Royal Straight Flush" now, you arrogant twit!

Fri, 05/11/2012 - 01:32 | Link to Comment TheObsoleteMan
TheObsoleteMan's picture

Far to much is being made of this. 2 mill, 3mill, 5mill, 10mill, it's just walk around money to JPM. Give this a couple days, and it will completely disappear off of the radar.

Fri, 05/11/2012 - 01:43 | Link to Comment chump666
chump666's picture

It will tear a chunk of confidence out of the so-called liquidity/market makers that being these over-leveraged investment banks, that and the derivative time bomb has been ticking for might have gone off.

This will 100% have a ripple effect on top of all the other HUGE problems brewing.

Fri, 05/11/2012 - 01:37 | Link to Comment q99x2
q99x2's picture

EBT doesn't have to be paid out until the end of the month.

The only thing worse than zombies are hungry zombies.

Hands off the EBT Jamie.

Fri, 05/11/2012 - 01:38 | Link to Comment Bastiat009
Bastiat009's picture

Gold and banks crash together. JPMorgan is a very big bank. The crash will be very big.

I know it doesn't make sense at all but gold has gone straight down (despite everything I read here, like the $1,6000/oz support or China is buying ...) since JPM said it was losing money.

Fri, 05/11/2012 - 01:37 | Link to Comment sbenard
sbenard's picture

I smell a Lehman coming!

Fri, 05/11/2012 - 01:50 | Link to Comment phungus_mungus
phungus_mungus's picture

God I hope so... Tired of this shit, ready to get it ver with.

JPM going down will do us all in.

Fri, 05/11/2012 - 01:41 | Link to Comment Crawdaddy
Crawdaddy's picture

Is it possible there are good guys out there showing teh JPM they are not so spesh? Did Wall Street Josey Wales show up and take a little skin?

Fri, 05/11/2012 - 01:42 | Link to Comment bagholder
bagholder's picture

Let me guess. Buffett will get a sweatheart deal by providing a cash injection. This time he needs to do it, to protect his position.

Fri, 05/11/2012 - 01:47 | Link to Comment alfred b.
alfred b.'s picture


   Bartiromo must be crying her eyes out....she always did cling to his every word!    She acted just like a giddy schoolgirl during their recent interview.



Fri, 05/11/2012 - 01:47 | Link to Comment chiswickcat
chiswickcat's picture

It couldn't have happened to a nicer bunch of guys...

Unfortunately, I don't think Au is going to benefit from this. 

Anyone know how any of the law suits are going against JPM for manipulation? Don't seem to hear much about that.

Fri, 05/11/2012 - 01:51 | Link to Comment Problem Is
Problem Is's picture

"you don't hedge risk when you bet on momentum continuing you idiot!"


Fri, 05/11/2012 - 01:56 | Link to Comment phungus_mungus
phungus_mungus's picture

Was the $JPM News Leaked? 13,800 May $41 Puts Traded Ahead of the News

Fri, 05/11/2012 - 02:10 | Link to Comment Jonny poor boy
Jonny poor boy's picture

HAHA yeah JPM CIO hedging tail risk

Fri, 05/11/2012 - 02:01 | Link to Comment Jonny poor boy
Jonny poor boy's picture

This is hilarious, he has to go, he has dimissed 1st rate managers for far far less in fact for nothing at all in the case of some senior managers, it will be interesting how he spins this to save his job, still the general public shouldnt have too much to worry about the loss will be funded from accruals to the staff bonus pool(....but not Jamie's)



Fri, 05/11/2012 - 02:02 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 What would be great is if the Great Collapse takes gold back to $35 an ounce and K-Cups are worth $5000 each.

Fri, 05/11/2012 - 02:05 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 I think we should just admit that these folks are not really smart at all, they are  just real good at inventing  infinately clever ways to bugger themselves.

Fri, 05/11/2012 - 02:07 | Link to Comment Hillbillyfreak
Hillbillyfreak's picture

I really don't understand the problem.  Did not the fed just recently do one of those stress test things?  Certainly, if not surely, part of the stress test was a complete anal review of this exact situation.  Certainly, if not surely, JP got an A+ grade with worse stresses than this.  Certainly, if not surely, they tested what would happen if you were down graded one, two, three times a lady.  And, they still got an A grade.  Right?  So, what's the problem?  We can trust Ben, right?  We can trust Jamie, right?   Besides, in Jamie's own words, no customer funds were involved.  Who cares about customer funds when you are backstopped by tax payer funds.   So, relax, chill, wait for the logical, sane explanation for the whole situation.   Do like me, go to a crapple store and buy a new toy.  Then, go home and buy 100 shares of crapple. 

Fri, 05/11/2012 - 02:37 | Link to Comment phungus_mungus
phungus_mungus's picture

Dude.... Seriously?

Fri, 05/11/2012 - 02:23 | Link to Comment foofoojin
foofoojin's picture

Trench 9? wait is that the same trench 9 from im confused. did we just identify the counter party?

Fri, 05/11/2012 - 02:20 | Link to Comment Nobody For President
Nobody For President's picture

At least no customer funds were involved...JPMChase is very good to its' customers:

Fri, 05/11/2012 - 02:24 | Link to Comment Hillbillyfreak
Hillbillyfreak's picture

"[The trading loss] plays right into the hands of a whole bunch of pundits...."

Sorry,  Jamie, no.  I don't give a rats behind about any pundit.  The trading loss plays right into my short position.  

Fri, 05/11/2012 - 02:31 | Link to Comment CitizenPete
CitizenPete's picture

Will it Blend?

Fri, 05/11/2012 - 02:38 | Link to Comment phungus_mungus
phungus_mungus's picture

With the proper amount of lube anything will fit!

Fri, 05/11/2012 - 03:01 | Link to Comment LarryDavis
LarryDavis's picture

I want to add something witty and bitterly sarcastic but I feel like so many have already killed it that commenting here is like going last at a gangbang.............well i'm that type of guy. I dont care how many dicks have been inside her I just want to bust a huge nut like the savage that I am. I can't wait like corporaphilac without nerves trying to touch but he can't quite feel what he so desperately longs to feel. DO NOT GIVE WALL ST YOUR FUCKING MONEY. DON'T USE AN ATM. GROW YOUR OWN VEGETABLES. DO SOMETHING TO UNDERMINE THESE FUCKS EXISTENCE OTHER THAN POSTING HERE. IF YOU MEET A ROMNEY SUPPORTER OR ANYONE EVEN PERIPHERALLY ASSOCIATED WITH PRIVATE EQUITY DON'T BE CIVIL.

Fri, 05/11/2012 - 03:08 | Link to Comment nukleon
nukleon's picture

Very good article...

Fri, 05/11/2012 - 03:54 | Link to Comment Clashfan
Clashfan's picture

Helpful piece and fantastic thread. Love this site.

A tribute to the financial elite fraudsters, history's best bank robbers:

Fri, 05/11/2012 - 03:55 | Link to Comment Clashfan
Clashfan's picture

Meanwhile, for the rest of us,

break your back to earn your pay,

and don't forget to grovel.

Fri, 05/11/2012 - 05:20 | Link to Comment falak pema
falak pema's picture

slippery greeeeeasy pole dance? à la JPM bust lust?

Pundits and empire freaks :

"Never the course of human events.... has so much been owed by so many to so few." Winston Churchill 1940...

"Never... in the course of human events... has so much been owed by so many because of so few." FP 2012. 

Oh, "The FEW", the happy few...the game was : privatise profits and socialise debts thanks to Tarp/QE. Is the wind turning, can the FED/ECB/BOE/BOJ be forced to throw in the towel? Or tell another "happy few" behemoth, we are gonna let the market Lehman you! Musical chairs on the Titanic...

Fri, 05/11/2012 - 04:00 | Link to Comment Roger Knights
Roger Knights's picture

Dimonos falling.

Fri, 05/11/2012 - 04:09 | Link to Comment BlackVoid
BlackVoid's picture

That is sadly, not enough to bankrupt them.

Fri, 05/11/2012 - 04:16 | Link to Comment CompassionateFascist
CompassionateFascist's picture

I don't know whether this is relevant or not. Yesterday received a 7 pp. letter saying that MorganStanleySmithBarney is tearing all of its PM accounts away from Citigroup. 6 July deadline. Put this together with the current pound-down of PMs, and I think the rats are getting ready to head for the lifeboats. Citi to sink first?

Fri, 05/11/2012 - 04:54 | Link to Comment Sequitur
Sequitur's picture

Define your terms. What is a "PM account"? Is it a precious metals account? Or is it the uberdouche "private [wealth] management" or "portfolio management" tag that bankers use for their richest clients?

Maybe it's as simple as Citi jettisoning its investment in MorganStanley. See

Fri, 05/11/2012 - 04:36 | Link to Comment devo
devo's picture

I would not be surprised to see this stock end the day up. Bizarro world.

Fri, 05/11/2012 - 04:39 | Link to Comment EZYJET PILOT
EZYJET PILOT's picture

I think JPM volunteerd to be the fall guy in order for the FED to print 2 trillion dollars.

Fri, 05/11/2012 - 04:56 | Link to Comment Sandmann
Sandmann's picture

Anyway we know $2 billion is the tip of the iceberg and has been press-managed. That it happened in London is also fitting and should give Barnier chance to take another look at Casino Capitalism on The interesting to know just how little control JPM has over its traders and for Shareholders to ask about Worst Case Exposures

Fri, 05/11/2012 - 05:44 | Link to Comment falak pema
falak pema's picture

...Of course, the situation is far worse because 1) any efforts to unwind such a huge position will lead to the market yawning wide and swallowing him in illiquid bid-ask spreads; and 2) the rest of the world knows their position - so why would the hedge funds not push their position. Note, it is not the instrument that caused this - it is the trader as "you don't hedge risk when you bet on momentum continuing you idiot!"...

Barracudas and whales :

Will the HF barracudas now start attacking a stalwart pillar of US/WS/capitalism. Bite the hand that feeds their Zirped-leveraged plays on Japan, China and Eurozone by going predatory on home turf?

In this pond there are no friends and memory/loyalty is Alzheimered into limbo. Friend n foe; all the same, we bite when we feel like it; any, all meat, is red meat. Jack is beginning to jacksaw his own bean stalk below him, while he climbs to dizzy heights looking for that golden pot...delusion of never ending illusionary fiat capital rip-off.

Is this man joking, trying to shut the barn door once the horse has fled...?

SEN. CARL LEVIN: What Happened Today At JPMorgan Is A Stark Reminder Of The Need For Regulators To Establish Tough Standards - Business Insider

Fri, 05/11/2012 - 05:10 | Link to Comment evolutionx
evolutionx's picture

Credit Default Swaps

Country/Sector Credit Default Swap 1 day   5 days Germany 88.490 +0.33   +3.94 USA 40.455 -0.41   +0.58 US Banks CDS Average 237.890 +0.63   +16.48 Bank Credit Default Swap 1 day   5 days Bank of America 268.528 -4.17   -0.24 Barclays Bank 201.973 +0.93   +18.39 Banco Santander 396.535 -0.32   +9.96 Banco Popolare 636.828 +3.35   +77.34 BNP Paribas 269.284 +0.81   +27.06 Banco Bilbao Vizcaya Argentinia 433.885 -0.22   +30.59 Citigroup 230.959 -3.23   +1.1 Commerzbank 268.143 -1.45   +20.29 Crédit Agricole 332.956 +5.46   +29.21 Credit Suisse 174.070 -0.07   +8.5 Deutsche Bank 188.223 -0.19   +14.68 Goldman Sachs 285.305 +1.23   +13.56 HSBC 150.749 +0.96   +9.87 ING-Bank 277.356 -1.7   +14.54 J.P. Morgan 108.422 +0.2   -1.58 Morgan Stanley 385.707 -1.39   +20.92 Royal Bank of Scotland 306.383 +4.18   +21.72 Société Générale 335.424 +4.22   +34.75 UBS 185.714 -0.23   +10.18 Unicredit 490.323 -0.1   +41.05


Fri, 05/11/2012 - 05:10 | Link to Comment adonisdemilo
adonisdemilo's picture

Is this the start of the long goodbye Jamie?

I hope so, but don't make it too long.

PS. Don't forget to cover all your silver shorts before you go.

Fri, 05/11/2012 - 05:23 | Link to Comment Monedas
Monedas's picture

"It is so unfair that the man boy Gaelic Kenyan Prince, who favors us with his Presidency, is impeded in his kampf to liberate us from the inherent evil of Capitalism by having to carry the selfish political baggage of the gay marriage bung holer bundlers !"     Monedas    1929     Comedy Jihad Happy Days Tour

Fri, 05/11/2012 - 05:24 | Link to Comment greenknightist
greenknightist's picture

does this mean the whale will not be getting his bonus this year ?

Fri, 05/11/2012 - 06:19 | Link to Comment Zero Govt
Zero Govt's picture

now you're dreaming

Fri, 05/11/2012 - 05:26 | Link to Comment prains
prains's picture

yen cross where's your two cents ?

Fri, 05/11/2012 - 05:42 | Link to Comment Sandmann
Sandmann's picture

Talk about centralisation! The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner— and this gang knows nothing about production and has nothing to do with it.”


Steve Keen posted this quotation on his DebtWatch Blog  - I think Karl summed it up is the Bankers not the Proletariat

Fri, 05/11/2012 - 05:56 | Link to Comment alfred b.
alfred b.'s picture


   Plus these same guys are the custodian of the SLV and worst still a designated vault of the crimex!  You can expect many more shoes to fall.

    Get yr physical gold and silver now!



Fri, 05/11/2012 - 06:13 | Link to Comment Withdrawn Sanction
Withdrawn Sanction's picture

Just goes to show (again), as if additional evidence were needed, the "stress" are completely arbitrary.  They are designed to arrive at a predetermined conclusion of soundness in order to gull the gullible into thinking all is well.  Reality, on the other hand, is merciless and unstoppable.

Fri, 05/11/2012 - 06:15 | Link to Comment fonzannoon
fonzannoon's picture

am headlines

"gold slides as risk aversion pushes up dollar"

Fri, 05/11/2012 - 06:18 | Link to Comment Zero Govt
Zero Govt's picture

what i like (?) about when a bank loses loads-a-money is they single out the trader, sack him, then get the Govt to jail the poor sod like it was not the banks fault (for employing him)

blame the little guy

when are company losses not company losses? ..when it's a Bank

Fri, 05/11/2012 - 06:45 | Link to Comment DCon
DCon's picture

Sounds like Wells fargo is doing some dodgy Accounting.


Discussed in the second half of the below show.


First half worth a watch too. Is Jamie Dimon really a fecal matter eating tapeworm?"]

Fri, 05/11/2012 - 07:07 | Link to Comment DollarDive
DollarDive's picture

Time to Show Jamie The Door


JP Morgan CEO, Jamie Dimon, received over $23 million in compensation in 2011, up 11 percent from the previous year.  Wall Street's most profitable bank had its second straight year of record profit in 2011 with $19 billion in net income  Dimon’s base salary was boosted to $1.5 million from $1 million last year.  He also received $17 million in stock options with a $4.5 million cash bonus.  Dimon's compensation is the highest among his banker peers.  Behind him is Bank of America CEO, Brian Moynihan, with $18 billion and Wells Fargo CEO, John Stumpf at nearly $20 million.....source



Fri, 05/11/2012 - 07:30 | Link to Comment Sandmann
Sandmann's picture

received over $23 million


CASH no doubt.......

Fri, 05/11/2012 - 07:04 | Link to Comment Downtoolong
Downtoolong's picture

When you're too big to fail, hedging becomes risk.

Seems like it's about time for Blythe to make another appearance on CNBC to champion JPM's commitment to expanding futures index trading in every market known to man. You know, for the little people, for the children.

Fri, 05/11/2012 - 07:08 | Link to Comment LuKOsro
LuKOsro's picture

$5 billion is just not what it used to be. I remember the times when people would freak out about a $100 million loss anouncement

Fri, 05/11/2012 - 07:19 | Link to Comment Sandmann
Sandmann's picture

That's what QE is about - you get relaxed about Zeroes......and promote them to Government


Just when are Americans going to get a grip on their banking system and politicians ?

Fri, 05/11/2012 - 07:11 | Link to Comment Ted Baker
Ted Baker's picture


Fri, 05/11/2012 - 07:35 | Link to Comment johnnymustardseed
johnnymustardseed's picture

As a primary dealer, JPM will just steal some more free money from the FED and move on. This will pass and they will laugh it off. I hate fucking JPM!

Fri, 05/11/2012 - 08:23 | Link to Comment JohnKozac
JohnKozac's picture

How can they call these Gambling Joints banks?

Fri, 05/11/2012 - 07:43 | Link to Comment dundermifflin
dundermifflin's picture

If jpm is tanking, then why is silver not going up. the conspericy theory was that jpm was keeping silver down

Fri, 05/11/2012 - 07:52 | Link to Comment cherry picker
cherry picker's picture

There was a movie once about a boy who did good deeds without wanting anything in return.  The kid died in the end trying to protect a friend.  The movie's title was Pay it Forward.

This Dimon character and all of his cronies and henchmen who are trying to cover up massive theft and mask it with techno bullshit will find out what Pay it Backward is all about soon enough.  If the government doesn't get them, something else eventually will.

Mark my words.

Fri, 05/11/2012 - 08:06 | Link to Comment The Reich
The Reich's picture

Peanuts according to Deutsche Bank

Fri, 05/11/2012 - 08:17 | Link to Comment Sandmann
Sandmann's picture

Hilmar Kopper said that some time ago

Fri, 05/11/2012 - 08:08 | Link to Comment JohnKozac
JohnKozac's picture

Ho worries, mate. There is plenty of Free Taxpayer Money and newly printed money from Bernanke to Bail the banks out and hand them record profits again, this time for 2012.

Fri, 05/11/2012 - 08:12 | Link to Comment Stock Tips Inve...
Stock Tips Investment's picture

Thanks for the article. I think the market does not need this bad news. Investors aresufficiently sensitive. JPMorgan These losses can be interpreted as a phenomenon thatwill be repeated in other similar institutions. Unfortunately, this incident is introducedanother element of uncertainty.

Fri, 05/11/2012 - 08:13 | Link to Comment imamonkey
imamonkey's picture

JPM made the announcement because they know they can get away with it. a $2.00 drop is nothing & will be sitting @ $44.00 next week. Hoodwinked are we AGAIN LOL .... I don't like my kids anyways ...

Fri, 05/11/2012 - 11:03 | Link to Comment OtherPeoplesMoney
OtherPeoplesMoney's picture

Love your posts Tyler, but I'm trying to understand what JPM has been doing-might do next (aren't we all) and it seems to me that your premise in the 1st paragraph of "As the market rallied, the positions required increasing amounts of protection be sold to maintain hedges" doesn't necessarily tally with your graph of CDX9 and its basis to single name CDS. The graph shows the index cheapening as spreads blow out which to me suggests that CDX9 protection was being SOLD on the way up BEFORE the rally. Granted this basis (or "skew" in credit trader speak-what a ridiculous term for this...) remained wide on the strong rally that followed but the basis often cheapens on rallies so that is not so unusual other than for its large size.

If indeed this activity is related to the hedging of tail risk, could it not be that JPM owns CDX9 super senior protection for this purpose, as the market blows out early summer 2011 that position gets shorter so they try to monetize some value/hedge some delta by selling CDX9 index protection into the move. When the rally kicks in later in the year someone clearly is still a heavy seller of CDX9 protection (how else to explain the stubbornly large size of the basis). if it is JPM why would they be doing that? Difficult to say without seeing how the tranches were trading.

Would be great if you could do a post including analysis on tranches too, in particular the super senior.


Sat, 05/12/2012 - 03:05 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

lesson learned... get more time next time on my Strangle. I had a JPM put & call and sold both last week. Today had 8 days to expiry so naturally I didn't expect anything useful from it. Well... would have tripled my price of sell vs buy just on the Put. Damn.

Sat, 05/12/2012 - 13:29 | Link to Comment Paracelsus
Paracelsus's picture

There's supposed to be a JPM shareholder meeting in Tampa on Tuesday.

Memo to Mr. Dimon:

Do not where Armani suit as tar and feathers stick to it.

Also,did I read somewhere's that this CIO unit was responsible for one quarter of JPM's profits?

I am sick of this HR/HY stuff where the public gets the bill when it goes wrong.

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