Why JPM's "Chief Investment Office" Is The World's Largest Prop Trading Desk: Fact And Fiction

Tyler Durden's picture

For the fiction, we go to JPM's conference call transcript where we had the following disclosures.

  • "I did want to talk about the topics in the news around CIO and just take a step back and remind our investors about that activity and performance. We have more liabilities, $1.1 trillion of deposits than we have loans, approximately $720 billion. And we take that differential and we invest it, and that portfolio today is approximately $360 billion. We invest those dollars in high grade, low-risk securities. We have got about $175 billion worth of mortgage securities, we have got government agency securities, high-grade credit and covered bonds, securitized products, municipals, marketable CDs. The vast majority of those are government or government-backed and very high grade in nature. We invest those in order to hedge the interest rate risk of the firm as a function of that liability and asset mismatch."
  • "We hedge basis risk, we hedge convexity risk, foreign exchange risk is managed through CIO, and MSR risk. We also do it to generate NII, which we do with that portfolio. The result of all of that is we also need to manage the stress loss associated with that portfolio, and so we have put on positions to manage for a significant stress event in Credit. We have had that position on for many years and the activities that have been reported in the paper are basically part of managing that stress loss position, which we moderate and change over time depending upon our views as to what the risks are for stress loss from credit. And I would add that all those positions are fully transparent to the regulators. They review them, have access to them at any point in time, get the information on those positions on a regular and recurring basis as part of our normalized reporting. All of those positions are put on pursuant to the risk management at the firm-wide level. They are done to keep the Company effectively balanced from a risk standpoint.... " Of course, when you own the regulators, it is not much of an issue... And would it be the same regulators who we have now confirmed don't understand the first thing about markets?
  • "The last comment that I would make is that based on, we believe, the spirit of the legislation as well as our reading of the legislation and consistent with this long-term investment philosophy we have in CIO we believe all of this is consistent with what we believe the ultimate outcome will be related to Volcker."

For the facts, we go to Bloomberg again, which was the first to break the Bruno Iksil story, and which exposes without shadow of a doubt why the Chief Investment Office is nothing but the world's largest prop desk. But hey, just as Goldman named it frontrunning service the "Asmymetric Service Initiative" thereby magically not making it a frontrunning service, naming the world's largest prop desk the "Chief Investment Office" makes it no longer be the world's largest prop desk.

Here are the highlights. First on the CIO group:

  • Achilles Macris, hired in 2006 as the CIO’s top executive in London, led an expansion into corporate and mortgage-debt investments with a mandate to generate profits for the New York- based bank, three of the former employees said.
  • Some of Macris’s bets are now so large that JPMorgan probably can’t unwind them without losing money or roiling financial markets, the former executives said, based on knowledge gleaned from people inside the bank and dealers at other firms.
  • The CIO’s growing size and market power have made it an increasingly important customer to Wall Street’s trading desks and a market influence watched by hedge funds and other investors, the former employees said. Iksil’s positions in credit-derivatives have become so large that some market participants dubbed him “Voldemort,” after the villain of the Harry Potter series who’s so powerful he can’t be called by name.
  • What Bernanke is to the Treasury market, Iksil is to the derivatives market,” Bonnie Baha, head of the global developed credit group at DoubleLine Capital LP in Los Angeles, where she helps oversee $32 billion, said in a telephone interview.
  • Macris’s team amassed a portfolio of as much as $200 billion, booking a profit of $5 billion in 2010 alone -- equal to more than a quarter of JPMorgan’s net income that year, one former senior executive said.

And far more importantly on the background of the guy behind it all. It kinda, sorta sounds like he is a... gasp.... prop trading kinda guy

  • It’s Macris, not Iksil, who was behind the strategy that led to an unprecedented build-up of credit risk in JPMorgan’s chief investment office, three former employees of the bank said. While they expressed doubt Iksil can unwind his positions without causing a dislocation in the markets he trades, they also said JPMorgan probably can afford to hold the assets until they mature and so won’t be forced to sell them.
  • In 2011, corporate revenue of $3.3 billion included $1.6 billion of securities gains and produced $411 million of net income, the bank said in an annual filing on Feb. 29. By comparison, JPMorgan’s investment bank reported $26.3 billion in revenue and $6.8 billion of net income in 2011.
  • Since 2007, the value of securities held in JPMorgan’s chief investment office and treasury has more than tripled to surpass $350 billion from $76.5 billion, according to company filings.
  • Profit, not risk management, guided the purchases, according to the former employees. One of the employees, who previously held a senior executive position at the bank, said Dimon even ordered some of the trades himself.
  • Dimon pushed the unit to seek bigger profits by buying higher-yielding assets, including structured credit, equities and derivatives, and ramping up speculation, according to two former employees.
  • In London, Macris expanded his team, adding expertise in credit and fixed-income trading. A Greek citizen, Macris previously was co-head of capital markets at Dresdner Kleinwort Wasserstein before joining JPMorgan in 2006. In that role he helped oversee a unit that made proprietary trades, or bets with Dresdner’s own money, according to two people who worked with him at the time.
  • Before joining Dresdner, Macris oversaw currency trading at Bankers Trust, now part of Deutsche Bank AG. Macris was an idea- generating machine who was blunt and didn’t suffer fools, said Duncan Hennes, who worked with him at Bankers Trust.
  • At JPMorgan, Macris hired Evan Kalimtgis, a former head of credit portfolio strategy at Dresdner, to help with risk management, according to one former employee.
  • In 2007 Javier Martin-Artajo, who had been Dresdner’s head of credit-derivatives trading, joined JPMorgan in London. George Polychronopoulos, who worked at hedge fund Endeavour Capital LLP, also joined the London office in 2009.
  • Martin-Artajo, Polychronopoulos and Kalimtgis didn’t return calls and e-mails seeking comment.
  • While Macris had a mandate to make money from the beginning, he didn’t start putting on big bets until after the credit crisis in 2008. Two of the former executives said the following year he bought AAA-rated pieces of collateralized debt obligations. As competitors dumped securities and prices slumped, Macris’s group at JPMorgan emerged as the biggest buyer in some markets, said one former executive at the bank who was familiar with the trades at the times.
  • In one example, a New York-based CIO trader named Jonathan Horowitz bought about $1.1 billion of AAA-rated portions of collateralized loan obligations for about 80 cents on the dollar in November and December 2008, people familiar with the matter said at the time. Horowitz declined to comment.

Finally, the most damning evidence that JPM's World's Biggest Prop DeskTM, elsewhere known as the CIO, has to be dismantled lest it suffer the fate of all other massive prop desks, which promptly blew up in the days after the Lehman failure, is the following:

  • One public sign that the chief investment office does more than hedge: Its trading risk is on par with that of JPMorgan’s investment bank.
  • JPMorgan’s annual report for 2011 shows that the CIO stood to lose as much as $57 million on most days of the year. That compares with $58 million for the investment bank, which includes Wall Street’s biggest stock- and bond-trading units.
  • Another sign: The relationship between the CIO and the investment bank’s sales and trading desks is strained, two former employees said. Employees in the CIO get a smaller share of their trading profits than those in the investment bank, giving Dimon a cost-management incentive to direct more trading through the CIO, one former executive said.

Hence: JPMs "Chief Investment Office" = World's largest prop trading desk. But hey, just repeat "Assymetric Service Initative" ... "Assymetric Service Initative"  ... "Assymetric Service Initative" three times ... and it becomes truth.

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Boilermaker's picture

Who gives a shit?

It's an all-out fraud.  It's not even open for debate anymore.  So, why are we debating it?

Tyler Durden's picture

Everyone else. If you don't like it, please go elsewhere.

disabledvet's picture

Well..."being the sole price setter in an entire market" may seem enviable...until you have to sell. "to whom" and "Solomon Brothers" comes to mind. Anywho "sounds like this bank should be split in two" to me. Of course we're equity people and "transparency is what we invest in."

SheepDog-One's picture

Well thats really the problem with this whole contraption, who do you sell to? Sure back in 2008 Bernank Paulson and the banksters salivated over stuffing their vaults with all the free money they could grab, sounded GREAT, but now they seem a BIT worried about their endgame which HAS to be passing it off to someone else! No other way around it, you pump....you have to dump. I guess thats why theyre all biting their nails wondering why retail isnt around to buy their printing and pumping. 

Boilermaker's picture

Why do you need to sell your equities when you have a zero interest non-recourse and un-auditable loan behind them?

They don't have to sell.  You're considering the game with rules that no longer apply.

SheepDog-One's picture

'They dont have to sell'? EVERYONE has to sell! What the fuck is the POINT in owning an 'equity', if you CANT SELL IT!

You dont get it! There is NO point to pumping or owning shit, if you cant SELL it! 

What youre trying to say is that its now La La Land, and you can hold all the free 'equities' and then what....'you win'? You dont win jack shit youre now whats called a BAG HOLDER!

Boilermaker's picture

The Fed does not have to sell.  They make money and refuse to be audited.  They have control of the horizontal and the vertical.

The game isn't to sell and profit.  The game is to inflate.

SheepDog-One's picture

You simply wrong! EVERYONE has to sell at some point! Sure they crammed their bank vaults full of toxic bubble assets and stocks, so what do they do now then, just yell 'I win' like fucking retards and go party?

ALL the money printing and bailouts and QE are all WORTHLESS unless they can transfer it to someone else! 

Basically what youre trying to say is if you owned a Mercedes dealership, and arent selling at $45,000, you can raise the prices to $55,000 and call it a big profit?

SAME THING! I dont care how much you think 'The FED' is floating above it all, theyre just like anyone else if they cant sell what theyve bought, then they are bagholders.

Boilermaker's picture

The FED is the FED.  They can and will just print more dollars, feed it to the PDs, and daisy chain this shit forever.  You're confusing private existence with an entity that makes the rules, they don't follow the rules.

The do not have to sell, ever, if they don't desire to.  They can and will slaughter the currency if they have to.

SheepDog-One's picture

Yeah? Try to point out what you describe as the natural order of things ANY other time in history! What youre stating is the new normal order of the universe has been tried many times before, has been very short-lived, and always resulted in massive tragedy.

'Theyll just daisy chain it and print and pump, forever'....really if you seriously think that youre delusional. Just try to explain to me what happens with QE3, which by all stated accounts MUST be bigger than QE1 and QE2, and the US has $7 gas? What do they do, just print again?

There are rules, everyone must follow or are FORCED to follow, no matter what kind of $5,000 suit they wear. 

SheepDog-One's picture

Really, the game is to inflate? Then why do they keep refusing to admit inflation, what are they scared of? Since there are no rules and all. What are they waiting for, retail investor to show up? these people are just delusional whackos, you give them far too much credit!

Bicycle Repairman's picture

"Then why do they keep refusing to admit inflation, what are they scared of?"

They will never give the sheep any real information in a timely fashion.  Information is power and you aren't going to get any.

spastic_colon's picture

Tylers...no disrespect, but this reply smacks of exactly the reason this site was created, to give dissenters a voice without fear of retribution....to suggest they "go elsewhere" is very un ZH like IMO....ya know 1st amendment stuff

hedgeless_horseman's picture



Maybe Marla is slippin' him decaf?  My wife did that to me once...once.

Floordawg's picture

Q: What do you tell a woman with 2 black eyes?

A: Nothing, you already told her twice.

(just a sick joke people, take it easy)

Boilermaker's picture

What's the difference between a woman and a refigerator?

The fridge doesn't fart when you pull the meat out of it.

spastic_colon's picture

must've shorted SBUX back in March

Boilermaker's picture

I'm more interested in knowing why my at-the-money ($61 strike) May IYR puts just got hammered down 40%.

Somebody knows something. 

hedgeless_horseman's picture



Atta boy.  Hold to expiration!

Boilermaker's picture

May?  It's still April, right?  And, it's at the money.  Why would I sell it off right now (other than if I had known 'someone' would slam it down today)?

hedgeless_horseman's picture



No worries, Mr. Retail Options Trader.  I am sure you will be able to exit with rapid, accurate, and fair execution.  It IS the Chicago way.

Boilermaker's picture

It's only 15 contracts but you've been here for a while.  I have no problem considering advice from more experienced options traders.  You think it's normal for a -40% move in an at-the-money option positon a month prior to expiration?

I don't know.  I haven't seen that before this early and at-the-money.  I don't get it. 

Dr. Engali's picture

The pricing looks in line with where they should be. It looks to me like you bought when money was flowing into that contract.

hedgeless_horseman's picture



I don't get it.

And that is exactly how the big boys make a living.  Did you even read this article?

You are a teenie-weenie 2D player in a gigantic and complex 3D world. 

Good luck, Flatlander.  And remember what a wise man once said (at the top of this thread).

"It's an all-out fraud. It's not even open for debate anymore."

Yet somehow the options market is different?

Dr. Engali's picture

Now that is interesting. Might be some money to be made there. It doesn't look like they are  to out of line as far as pricing now. Maybe you bought when somebody was opening a big position.

SheepDog-One's picture

What do you care what the price is, you dont have to sell!

Boilermaker's picture

I do have to sell.  Bernake does not.  My name isn't Ben.

I'm gambling with my money.  He's gambling with my money.  I care.  He doesn't.

SheepDog-One's picture

BULLFUCKINSHIT Bernank does not have to sell! What youre saying is a 1 sided equation produces a sum...no you can print and pump but youve got to pass off the pump to SOMEONE sooner or later! Thats why theyre all screaming for retail to show up, theyre confounded that a new stock market mania hasnt materialized, certainly not for no reason! They dont know what to do with all the toxic crap stuffed into their bank vaults. What does Ben DO with all the stocks and bonds hes pumped? WHAT? Just print and pump more to support them? Thats not an answer, hes got to offload inventory or what he becomes is whats known as a BAGHOLDER!

Boilermaker's picture

How much money has the FED loaned out already?

You don't know because they refuse to be audited.  What assets do they own?  You don't know because they aren't audited.  What is the cap on the size of their balance sheet?  There isn't one, they can do whatever they want to.

Unless you are suggesting that the Congress strips them of power or changes their charter, you're wrong.  I wish you were right but you aren't.

The have full control of the CURRENCY which is the underlying value of EVERYTHING. 

fuu's picture

Being told to GTFO is pretty traditional around here.

Boilermaker's picture

It's much worse here than in the past and the articles are getting more and more sensational, IMO.

fuu's picture

I disagree, the situation itself is becoming more and more sensational. The coverage has remained steady.

spastic_colon's picture

geez....ya pick the wrong nostril around here and you get troll votes....my narcissism cant handle it!

Carl Spackler's picture

Tyler, love the use of the trademark symbol !

Clever humor.

NotApplicable's picture

Who's debating? This article accounts for the fraud. Now, while you may not find much value in this, I sure do.

Otherwise, it's mere conjecture.

Thomas's picture

Asymmetric. BTW-In a 2002 email I predicted JPM was toast. I was wondering last year how I had gotten it so wrong. Maybe....

Melin's picture

Let's imagine a universe in which ZH chose not to report on this type of info.  What would be the point of going to work every day?

Robot Traders Mom's picture

JPM may blow up the world (probably), but has anyone noticed how progressively worse Goldman debt is trading now?


GS seniors are trading some +350 to the 10 yr...Are they the next to fall or are they just buying their debt cheaper?

Fidel Sarcastro's picture

This sounds bullish - right?

Central Wanker's picture

Let's all look surprised!

disabledvet's picture

"on television and the radio" preferably.

hedgeless_horseman's picture



"Don't be too proud of this technological terror you've constructed, Admiral Dimon. The ability to destroy a planet is insignificant next to the potential of the Force."


-Lord Blankfein

Sudden Debt's picture

So America's income generators are Ipads and Wallstreet Hustlers...



Baghdad-Bob121's picture

Can we say MF Global anyone?  What happens when those "trades" go side ways?  Oh ya, the tax payer will make them whole!

Crassus's picture

Tri party repo market anyone?

Downtoolong's picture

Too much money in the hands of too few people who have too much power to do whatever they want.


trembo slice's picture

High-grade, low-risk securities like MBS where have these guys been?

Practical Irrationality's picture

Extremely low-risk when you have the Fed indicating that they will buy-out/bail-out/out-print continuing MBS problems.