In an interview with Italian newspaper Milan Finanza on Saturday, JP Morgan CEO Jamie Dimon said that he could lose up to $5 billion from the firm's exposure to the PIIGS countries. As Reuters reports [16], "Dimon said the bank was exposed to the five countries (PIIGS) to the tune of around $15 billion. "We fear we could lose up to $5 billion ... We hope the worst won't happen, but even if it did happen, I wouldn't be pulling my hair out," he said. Dimon said Europe was the worst problem for the banking sector. "But the EU and euro are solid even if the states will have to be financially responsible and do all they can to develop common social policies," he said." While it is admirable of JPMorgan to disclose some of its dirty laundry, as this was a topic that received hardly any mention in the firm's prepared quarterly release, and is predicated surely by the fact that its Basel III Tier 1 Common of $122 billion dwarfs this possible impairment, there are some questions left open. Such as what happens if and when Greek CDS, now most likely before March 20, were triggered? And the logical follow up - what happens when Portugal, Ireland, Spain and Italy, and who knows who else (Hungary?) follow suit and decide that a coercive restructuring is actually not suicidal, even though it most certainly is once a given threshold is reached. In other words, how long can Europe tolerate the same two-tiered sovereign debt market that S&P warned about so explicitly yesterday? Finally what happens to JPM's Tier 1 Common when the European dominos impact not only the directly exposed PIIGS nations, and specifically their bonds, but all those other banks, insurance and reinsurance companies, whose current viability makes up the balance of JPM's remaining $117 billion in Tier 1? Because in its essence, stating that JPM is "fine" even if Europe were to collapse is analogous to Goldman telling Congress it would collect on its AIG CDS if and when the CDS market were to implode absent the government bailout of AIG, which itself was accountable for over $2 trillion of the entire CDS market itself.
More on what Jamie said:
Dimon said the recent extraordinary liquidity measures taken by the European Central Bank had been a good move.
"Banks will have to have more capital and sell assets, but at least they have liquidity," he said.
Asked about the U.S. Federal Reserve's bank stress tests, which will come out in March, Dimon said his bank would pass.
"I hope the test shows American banks, perhaps with one or two exceptions, are very well capitalised, indeed too much," he said.
No they are not, and we hope everyone understands this - after all in a world in which daisy-chained liabilities are rehypothecated via the shadow banking system into virtual infinity, the failure of one bank would lead to the failure of hundreds, and explains why no bank has been allowed to fail. Last we checked, the nationalized fate of Dexia is still in limbo. Which also explains why the only strategy so far has been to make banks TBTF: simply - so they can step in and buy firesale assets where the Fed and other central banks are politically prohibited from entering. As Jamie himself admits:
Asked if the bank could take advantage of the problems facing Europe's
banks and buy assets, he said, "we have already bought some assets and
would like to possess others".
Bingo - Europe's collapse, which according to some is getting its "financial advice" from JPM, it JPM's gain. Until a point of course - that point being where the impairment of assets overtakes the preexisting capital buffer. And with Europe having trillions and trillions of debt that has to be marked down by at least 50% for it to be viable, not even JP Morgan would survive a realistic reassesment of the debt "problem."