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The "World's Largest Prop Trading Desk" Just Went Bust
A month ago we warned that JPM's CIO office is nothing short of the world's largest prop trading desk. Not only were we right, but what just transpired is just shy of our worst possible prediction. At the end of the day, the real question is why did JPM put in so much money at risk in a prop trade because we can dispense with the bullshit that his was a hedge, right? Simple: because it knew with 100% certainty that if things turn out very, very badly, that the taxpayer, via the Fed, would come to its rescue. Luckily, things turned out only 80% bad. Although it is not over yet: if credit spreads soar, assuming at $200 million DV01, and a 100 bps move, JPM could suffer a $20 billion loss when all is said and done. But hey: at least "net" is not "gross" and we know, just know, that the SEC will get involved and make sure something like this never happens again.
As for what we said before, we will just repost the whole thing as we were, once again, right.
From April13: Why JPM's "Chief Investment Office" Is The World's Largest Prop Trading Desk: Fact And Fiction
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?
- "All of those decisions are made on a very long-term basis." Indeed - and the Norway sovereign wealth fund bought Greek bonds investing in "eternity." Only problem is eternity came far faster than expected."
- "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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why, you ask? because they own a printing press.
BusinessWeek interview explaining Iksil's trades back in April (for those who didn't pay attention): http://www.businessweek.com/videos/2012-04-09/jpmorgan-traders-swap-bets
Max Keiser is wrong —
You don't have to buy silver to crash J.P. Morgan
Their prop desk, sorry, I mean CIO "risk management" desk will crash them for you.
(yes — a risk management desk that increases risk — and right there we have the fucking textbook definition of iatrogenesis).
iatrogenesis...
As in taking it up the ass so badly by JP, Goldilocks, et.al ever so badly you no longer qualify for the classic last in line skull fucking.
now it makes sense why JPM took MF Global money. prob covering what losses they could.
and remember - there is NEVER just one cockroach
The Fed is blowing up.
Bloomberg and JPM trot out prop trading and chatter about these problems.
David Stockman's article re. the Fed: http://www.testosteronepit.com/home/2012/5/9/the-emperor-is-naked-david-stockman.html
Eye on the Fed.
I wonder how many shares those idiots Munger and Buffett own? Another "productive" asset they were referring too?
Everbody I mean EVERYBODY should go out and buy some physical silver tomorrow, doesn't have to be a lot if we can get everyone on board we can do some damage. With JP Morgan floundering NOW is the time to put the squeeze on those naked shorts.
Second Friday in May? Time to take the silver away!
#SILVERFRIDAY
Start spreading the word tweets have been started, loop in hash tags like #endthefed #ronpaul #crashjpm #crashjpmorgan #silver #gold #commodities #tbtf #jpm
I will commit to a tube of silver maples 25oz.
$20 billion?? 'tis only a flesh wound!
I'll pick up a couple rolls of quarters.
And I'll just pick up some of these shiny nickels in front of that steamroller....
Oxygen gets you high. In a catastrophic emergency, you're taking giant panicked breaths. Suddenly you become euphoric, docile. You accept your fate. It's all right here. Emergency water landing - 600 miles an hour. Blank faces, calm as Hindu cows.
-- Tyler Durden
mooooooooo....
A shitload hopefully.... but they still think the credit-bandwagon will roll forever
How many times do we need to hear the....."and make sure something like this never happens again", before SOMETHING is done???LOL
Jamie's hard-cover advice bio is selling for $2.33; could be good for a few laughs.
http://www.amazon.com/Last-Man-Standing-Ascent-JPMorgan/dp/B005CDTFCY/ref=sr_1_4?s=books&ie=UTF8&qid=1336689103&sr=1-4
Jamie - Seek help at Gamblers Anonymous.
A verse on a terrible tale
Involving a JPM whale
To fill his own tank
He fucked the whole bank
The problem with Too Big To Fail
Why are primary dealers being assassinated?
Why AREN'T the Primary Dealers ...!?
Countrywide, Lehman, Bear Stearns, ML, MF - deceased/kidnapped
JPM, HSBC, CITI, BAC, CS, etc - on life support/in coma's
Look for bounced check fees to increase and another attempt at the debit card transaction fee.
Big meeting going on tonight at 33 Liberty Street. (That's the FRB NY for those not from NYC). Dudley called in the boys and is not pleased. Wants to know who else may have this crap coming down the pike.
Anyone who uses a debit card is a dumb ass and deserves every fee they get.
Where is Max Ficher?
All trolls were ordered to report in and head to the main stream media threads for damage control...
Man. It's times like this that make me miss Trav7777 and RoboTrader. Though Robo would be nowhere on news like this.
Me 2, I miss my Trav. The little bitch owes me money!
He was last seen strolling towards 1600 Pennsylvania Ave. with a pair of kneepads thrown o'ershoulder, whistling, grinning, and occasionally muttering something that sounded to passers-by like "... better than Monica... heehee!".
Max Sphincter?
Civis Mundane
Comay Mierda,
You make an interesting point. If JPM took MF Global Customers Money. It could have been used to prop up their positions. Plus, if you remember there were a lot of people that got Margin calls and had to liquidate their positions.
If JPM casued the loss of Customer Accounts by not putting the Money that they received from a trade by Mf Global with Goldman back into Mf Globals Account intentionally. Could this have been done to better their positions in Gold and Silver. Remember a lot of people did not get the Gold that they had bought thru options.
HMMM. Makes you think.
No kidding! Wasn't that the lesson of the 2008 crisis? If one is doing it they are ALL doing it to some degree. Which means we may very well start hearing about other banks having blown up over the next several months.
Remember when Bear's funds blew up? It took several months before it filtered down to other banks but we found out they were all holding similar bags of crap.
If you have something to say just say it. Don't hold back.
Hey.. sometimes, silence is golden.
Duct tape is silver.
This is bullish right?
The last time I saw duct tape, it was leopard print. Apparently leopard print, duct tape purses are all the rage for 12 year old girls. Yikes!
I bet their CIO desk appropriately managed their risk by shorting JPM stocks. lol
nice one
Don't worry the other arms of JPM have been short financial stocks for quite some time. Nothing like front-running yourself.
Paging Ben Shalom......cleanup on aisle 5.
Have to wonder how much of this crap is re-hypothecated and how all that will work out when they are forced to start selling tomorrow.
The money vaporized, Bitchez!
and it's gone.......
http://www.youtube.com/watch?v=4TlPo0yCSa4
Why would JP Fuckem take a loss on customer positions, you ask?
Becasue they were not customer positions.
Blythe fucking lied to the regulators, press and muppetts.
On the telly. Duh.
But they were hedged.
What's hedged got to do with customer positions?
Nothing you ask?
Nopthing, they say.
On my.....
Will they be held accountable?
Fuck no.
What does this mean for the Volcker Rule?
(chortle) Never heard of it.
What about the silver manipulations?
What are you talking about, they're client positions.
Which are client positions?
The client positions.
No, I mean the silver.
What silver?
Who's on first?
... digital mining techniques ...
It will be interesting if they ever have to unwind their short silver/PM positions.
They can't. That is one of the reasons it has been manipulated. Start with a small lie and well, you know how that goes...
Protect the hypothecation at all costs.....but we didn't mean that much.
+100
Excellent!
I had beer coming out my nose!
I can't help but wonder if JPM is the current target bank mentioned in: Gold Cover Claus Guidance
file taken down
i dont' belive Iksil did alone. could it be the GS's payback to JPM after the Greg Smith's letter?
Tyler, everybody in our office is in total awe of you uncovering this event long before it happened. Complete and absolute respect.
This story makes me...
http://www.youtube.com/watch?v=VLnWf1sQkjY&ob=av3n
Tyler is a rock star ...
You mean: Tyler are rock stars...
The less people know about Tyler the better, keeps him safe at night.
He may be a double agent.
So is it "Tylers Durden", or "Tyler Durdens" ?
Tylerensis durdensis sapiens
Attorneys General.
Tylers Durden
its Tyler Durden and Marla Singers
Exces feat. Marla Singers - Hard & Wet (HD)
http://www.youtube.com/watch?v=YkUZcG4z0O8
I actually smudged my computer screen trying to kill your avatar.
It's "The Tyler Durden." A collective--like The Borg.
Tyler rehypothicated ....
We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't.
Tyler Durden is Jamie Dimon... didn't you know?
For a minute there i just...
-BLACKED-OUT
Remember risk has two components: probability and consequence. The probability of getting in to a car and crashing are high but the consequences are low compared to a plane crash. The probability of getting in to a plane and crashing are low but the consequences are high.
The prob that Freddie and Fannie fail were low (govt backed) but the consequence of everybody getting out at the same time was high.
So you get what we have here today. A man gets whats he wants.
Shut down your ego. What do you see?
Apparently they forgot about the God of Interest Rate however...
Heyuh, if they canna just print their own money, thatta soundza lot likah da fraud!
Unleash the incredible anger built up in the gut of America.
RELEASE THE KRAKEN!
Now, does anyone have a spare Medusa head to stop the gut once it's done destroying TPTW(ere)?
Hilliary Clinton is still using it, au natural.
BINGO!!!!!!!!!!!!!
Any currency ol Jamie boy thought he had to fight back the Volker Rule just went up in smoke. PD margins will continue to get vaporized and banking will become utility-like again. Jim Rogers was right...banking is going back to being a backwater and this is just another nail in their coffin. BX, KKR, CG... these are the investment banks of the future.
POOF!
And it's gone. Next please.
*Lights a sigar*
They should have hedged with garments.
Holy Crap. Can you say 2008?
Two Thousand Eight
I'm still stuck on the holy crap part. How does crap become holy?
it is blessed by the sphincter then baptised in the toilet.
Also known as the porcelain throne...
LOL
"We got a floater! What does it mean?"
you guys *crack* me up
It means God is smiling...
That Richard was well hydrated at the time so his poop had the same density as water.
Papal expulsion.
That is all.
twenty oh eight
MMVIII
11111011000
21214
Maybe Geithner can get GS to buy JPM for $3 or so by next Monday.
How about we resurrect Lehman and have them buy JPM? Where are you Dick Fuld?!
How much is the haircut?
i may broker this one for ya...
Regards,
Hanks. P
Will you grab any if it hits $5?
Holy Crap. Can you say 2008?
PPT will be working overtime the next few weeks
BlacK FriDay¿
too thausind ate.
Good thing they put in the TBTF break-up provisions in Dodd-Frank. Everyone thought it would be BAC as the guinea pig.
ZERO HEDGE: once again proving why this site is number one in exposing the massive, massive fraud that is the "global financial system," insofar as the United States and the EU are concerned.
United States Dollar, European Union Euro: utterly worthless currencies flying out of central bank printing presses.
Attention America: you slave at your garbage low wage jobs for worthless paper. Yet the Federal Reserve and its member banks (read: owners) simply hit "control-P" (read: quantitative easing, twist, TARP, HARP, mortgage settlement) and steal your paper dollar wealth while enslaving your children to trillions in debt that can never be repaid? And all this is done so criminals like Jamie Dimon, Pandit, Fuld, Thain, and Mack can gamble billions of paper dollars to boost banker bonuses?
Wake the fuck up America. Wake. The. Fuck. Up.
Read Zero Hedge. Religiously. Get the hell out of worthless paper, it IS going tits up. The devaluation reset, if not outright default, is coming. Get prepared.
Jamie acknowledges this has stirred up the " pundits ".....meaning ZH et al.
http://www.reuters.com/article/2012/05/10/us-jpmorgan-trading-idUSBRE8491H020120510
Hilarious..... it violates "the Dimon principle."
What in the name of God does that mean?
No midget porn involved?
Ohhh...as long as you don't touch the gay midget porn, then everything is OK!!!
Here's a classic quote from that article -
"This violated our principles. This trading violates the Dimon principle."
He actually said that...arrogant fuck
Well, Jamie dear, there was a principle you absolutely didn't violate -- The Peter Principle (http://en.wikipedia.org/wiki/Peter_Principle).
I'm especially fond of Peter's Corollary: "work is accomplished by those employees who have not yet reached their level of incompetence." (Though I did hear the desk's last act was to short JPM, their way of effectively "managing up.")
(1) Dont get caught
Holy Christ, take a look at FAS (3X financial bull) in after hours trading -- down 5%, below $90/share, when it was at 107 on May 1. I know some people play the lottery with these triple-leveraged beauties, buying at the close for an overnight trade, but those that did today got totally fucked courtesy of Mr. Principles, their stops pierced like a fencing dummy.
"[a] hit to Dimon and the bank's reputation."
Ha... ha ha... HA HA HA...... BWAHA HA HA HO HO HO HO... HE HE HE [breath]... HI HI HI HI HIIIIII *passing out*
Agreed....but unfortuantely us "conspiracy nutcases" that have been screaming to the top of our lungs for years about rank manipulation, fraud and collusion by the fed (and its primary dealers) somehow does not make it to the MSM. Unless one is fortunate to have this site as a bookmark, one is perpetually lost. THANK YOU to all my fellow bitchez at ZH!!! All this education, and free tuition to boot!
lol @ "my fellow bitchez"
Interest rates are PLUNGING bozo. If it really was "the end of
the world" JP Morgue would be rubbing it in our face right now. As it is "it's just the end of them." Move along!
Word!
BTW, is CDS a new cable channel? ;)
Couldn't have happened to a nicer group of scumbags.
Amen brother!
True - But you have to remember that a lot of people have investments and company 401k assets at JPM. A lot of pain on an unraveling is potentially coming our way.
"Patience Young Grasshopper." got 'em right where we want 'em....
True that a lot of people could get hurt, but of course it would be all their own fault. After all, they are just a bunch of greedy speculators and they knew what they were getting into. The risks are all so clearly explained in the paperwork that they signed. Those Greedy Grandmas deserve what they get! (sarc)
Perhaps this comical parody from the movie "Airplane" of a CNBS (pronounced "seein' BS") anchor/commentator douchebag should be shared around the internet community during this most appropriate time?
http://www.youtube.com/watch?v=Pn0WdJx-Wkw
too bad you can't buy stock in law firms, caue those bastards may stage a comeback!
Yeah, only problem is, it's taxpayers, employees, and shareholders that are gonna get left holding the bag. Dimon and his merry band of cocksuckers in JPM management will get away with billions scot-free.
is this a financial sector black swan event..?
If you listen carefully you can hear wings flapping, liker surround sound 7.1 aspect ratio!
If BP, Halliburton and Transocean can survive after killing a few people, dumping millions of gallons of oil in the gulf and ruining a few hundred, thousand peoples lives, payout $40b and continue pumping on, I would reason JPM will survive too. If it's just $2b, they could pay for it by halving their dividends for a year. It'll sting for a bit, but they get past it.
If they are saying it is $2b then it is probably $4B. The other thing that you are missing is they are still at risk since they cannot unwind the positions. At this point is anybody's guess what the ultimate loss is going to be or how it will affect markets. Finally, cutting dividends would cause the stock to drop further, and I don't think that is good for bonuses.
Liquidity will float ALL boats.
What about that interview from that JP Morgan wench about not hedging commodities? Somebody help me with what I'm trying to recall.
Blyth Maters the silver killer
I think she said something like:
"Manipulating markets and lying about itis not part of our business model, honest!"
Control P. There's an app for that.
Is this really a 2008 type situation?
no. but it could be a trigger for something MUCH worse than 2008 ... too early to tell ...
"...same, but different"
Hush little JPM, don't say a word
Bernanke's gonna buy you a Mocking bird
Looks like Jamie's going to continue increasing those shorts in silver to make up for lost profits. Think how much Blythe made you last year on your rigged games. Surely you can think of something else.
Shorts? Hahahahaha. He's LONG that shit!
The problem is the Ag rigging is an ATM machine and they quite possibly will need a dump truck.
Only the sheep speculator is short and in line for the killing. They have been unloading their shorts since the silver pop last year. No wonder JPM were crapping their pants. I bet they were looking at the abyss. Soros is a bastard.
have to worry about contagin risk.
Intentional heartache.
Perfect timing for the markets and getting QE3 in the queue.
Right!
Not fair. YOu guys told me it was all better. OK, so I won't buy BAC.
God, if only BAC and Margin Stanley could hit a patch like this as well, I would believe in Santa Clause again.
let's hope JP's comodity trading unit is close to hitting a pile of shit as well.
Common'-The CFTC says they're just fine. What me worry?
Yeah, they've got millions of... something of silver.
Jamie wanted to wait until next week for the conference call on the commodities trading unit mark-to-market losses.
I thought Blythe just told us they dont have a book.
1:53 for the money shot.
http://www.youtube.com/watch?v=gc9Me4qFZYo