While last week's relentless panic buying has been extensively commented on, it was last week's nearly 50% plunge in near-term stock vol that the major news as the world went from risk off mode to risk on. It wasn't just stocks whose volatility imploded: it was the implied near-term volatility of all asset classes that was hammered in the past three days. But while everyone is fascinated by the rapid VIX down move, it is what someone did on Friday by betting that VIX will double by February in a 24/29 VIX Call Spread, that was of note. The amount wagered: $6.7 million. Whether or not this was an outright trade, or a hedge (and if one listens to Jamie Dimon perjuring himself to Congress, any trade is a hedge, adding further to the confusion) is unknown, but it is not pocket change betting that the plunge in vol will be merely transitory.
Under the guidance of Jamie Dimon, adjudged by the mainstream media to be the greatest banker the world has ever known (hyperbole accepted), a late night Friday phone call (we assume not a drunk-dial) between Attorney General Eric Holder and JPMorgan's general counsel, confirms, according to the WSJ, that JPMorgan will settle their residential mortgage bond suits with the DoJ for $13 Billion - the biggest settelement ever for a single company. Bloomberg reports that an additional $2 billion was added during the negotiations last night. Who knows: perhaps Dimon feels the same about Holder as the rest of the population and made it quite clear, at a cost of another $2 billion. The final wording of the deal is to be finalized but as part of the deal the DoJ expects JPM to cooperate with the continuing criminal probe of the bank's RMBS issuance - which remain unresolved. The settlement is 'unsurprisingly' in line with JPM's expected litigation expenses for Q2/Q3 13 but it would appear they expect worse to come still as the total litigation reserve was recently increased.
JPMorgan Chase has had a bad year. Not only has the bank just reported its first quarterly loss in more than a decade; it has also agreed to a tentative deal to pay $4 billion to settle claims that it misled the government-sponsored mortgage agencies Fannie Mae and Freddie Mac about the quality of billions of dollars of low-grade mortgages that it sold to them. Other big legal and regulatory costs loom. JPMorgan will bounce back, of course, but its travails have reopened the debate about what to do with banks that are “too big to fail.” We now have a global plan, of sorts, supplemented by various home-grown solutions in the US, the UK, and France, with the possibility of a European plan that would also differ from the others. In testimony to the UK Parliament, Volcker gently observed that “Internationalizing some of the basic regulations [would make] a level playing field. It is obviously not ideal that the US has the Volcker rule and [the UK has] Vickers…” He was surely right, but “too big to fail” is another area in which the initial post-crisis enthusiasm for global solutions has failed. The unfortunate result is an uneven playing field, with incentives for banks to relocate operations, whether geographically or in terms of legal entities. That is not the outcome that the G-20 – or anyone else – sought back in 2009.
A quarter after Goldman reported the highest per employee comp since the record bonus period just after the Lehman bankruptcy, when the average employee of the firm's then 31,700 workers made $431,956, the firm which once ruled the world proudly with tentacles running every important global central bank, was forced to slash employee comp by a whopping 35%, from $3.7 billion, a comp margin of 44% in Q3 2012 and roughly the same last quarter, to a tiny $2.4 billion, or a comp margin of just 35.4%, resulting in average trailing 12 month per employee (of which it had 32,600 in Q3 2013) accrued compensation of just $380,368, the lowest since Q2 2012.
Q. How worried are you that one morning the bond market has moved against the United States?
A. It’s virtually assured, the question is when and how. I don't know if it will be two years of five years but it will happen. It is a matter of time, the United States can’t borrow indefinitely. Over hundred years bankruptcies of country after country who thought they could get away with it because they had the reserve currency and the military power of the world. We are going to have fiscal discipline. It’s imposed upon us or we do the right thing and do it to ourselves the right way.... America knows the way, it doesn't have the will.
- Spot the pattern: Senate Leaders Nearing a Deal (Politico), Senators say debt, shutdown deal is near (USA Today), Senate Leaders in Striking Distance of a Deal (WSJ), U.S. senators hint at possible fiscal deal on Tuesday (Reuters), Senate Debt-Limit Deal Emerging (BBG)
- U.S. debt ceiling crisis would start quiet, go downhill fast (Reuters)
- Uneasy Investors Sell Billions in Treasurys (WSJ)
- BOE’s Cunliffe Says U.K. Is Not in Grip of Housing-Market Bubble (BBG)
- Letta Mixes Tax Cut With Rigor in Post-Berlusconi Italian Budget (BBG)
- Japan Seeks to Export More High-End Food (WSJ)
- Burberry names Bailey CEO as Ahrendts quits for Apple (Reuters)
- China’s Biggest Reserves Jump Since 2011 Shows Inflow (BBG)
- Headline of the day: U.S. Risks Joining 1933 Germany in Pantheon of Deadbeat Defaults (BBG)
- As Senate wrestles over debt ceiling, Obama stays out of sight (Reuters)
- The "Truckers Ride for the Constitution" that threatened to gum up traffic in the capital was a dud as of Friday afternoon (WSJ)
- China New Yuan Loans Top Estimates as Money-Supply Growth Slows (BBG)
- Vegetable prices fuel Chinese inflation (FT)
- China Slowing Power Use Growth Points To Weaker Output Data (MNI)
- London Wealthy Leave for Country Life as Prices Rise (BBG)
- Gulf oil production hits record (FT)
- Every year like clockwork, analysts start out bizarrely optimistic about future results, then “walk down” their forecasts (WSJ)
- Weak Exports Show Limits of China’s Growth Model (WSJ)
The Fed's Broken Piping In One Chart: JPM "Purchasing Dry Powder" Rises To All Time High $550 BilllionSubmitted by Tyler Durden on 10/11/2013 11:54 -0500
As of the most recent data, which saw JPM's deposit holdings surge by the most ever (except of course for the inorganic "acquisition" of WaMu in Q3 2008) or $78 billion in just one quarter, while loans continued to be flat, we now knows that JPM had marginable power to chase risk higher to the tune of $552 billion, an all time record in excess deposits over loans!
JPM Hammered By Massive $9.2 Billion In Legal Expenses, Posts First Loss Under Dimon; Takes $1.6 Billion Reserve ReleaseSubmitted by Tyler Durden on 10/11/2013 06:42 -0500
So much for the JPM "fortress balance sheet." Moments ago the bank which 18 months ago stunned the world with the biggest prop trading loss in history, just reported its first quarterly loss under Jamie Dimon, missing expected revenue of $24 billion with a print of $23.88 billion, but it was net income where the stunner was in the form of a $0.4 billion net income. The reason: the fact that from the government's best friend, Jamie Dimon has become the punching bag du jour, and having to pay $9.15 billion in pretax legal expenses, the biggest in company history. Considering that the other key component of Q3 net income was a whopping $1.6 billion in loan loss reserve releases, one wonders just how truly strong Q3 earnings really were. But of course, this being Wall Street, all negative news is "one-time" and to be added back. Which is why JPM promptly took benefit for all charges, which means adding back the $7.2 billion legal expense and $992 MM reserve release after tax benefit. In short: of the firm's $1.42 in pro forma EPS, a whopping $1.59 was purely from the addback of these two items.
So are you going to be among the few, the proud, the surprised Sell Side analysts?
With the government shutdown stretching into an improbable 4th day (and with every additional day added on, the likelihood that the impasse continues even longer and hit the debt ceiling X-Date of October 17 becomes greater), today's monthly Non-Farm Payroll data has quickly become No-Farm Payroll. However, just like on day when Europe is closed we still get a ramp into the European close, expect at least several vacuum tube algos to jump the gun at 8:29:59:999 and try to generate some upward momentum ignition in stocks and downward momentum in gold. In addition to no economic data released in the US, President Obama announced last night he has cancelled his trip to Bali, Indonesia, to attend the APEC conference and instead to focus on budget negotiations back at home - which is ironic because his latest story is that he will not negotiate, so why not just not negotiate from Asia? Ah, the optics of shutdown.
Hidden deep in the pages of JPMorgan's Living Will report just realesed by the FDIC, the WSJ has found that CEO Jamie Dimon (still Chairman of the overall JPM entity) has relinquished his position as Chairman of the banking conglomerate's major deposit-taking subsidiary. While the bank claims this is "solely to create a more uniform structure among our subsidiary boards," one can't help but feel this is driven by unrelenting pressure from the administration (and its regulators) as the deposit-taking subsidiary had its confidential management rating downgraded from a 2 to a 3 on a scale of 5, a rare score for such a large institution; and faces public enforcement actions demanding changes to alleged risk-management, anti-money-laundering and debt-collection weaknesses.
Still three-plus years left in Obama’s presidency, where mediocrity has been elevated to a highly acceptable status. A good and intelligent man has proven to be an incapable leader, often by making poor choices in the advice received... However, not all has to be lost for Obama; he still has time to reweave a legacy that now appears grey and bleak. And that reweaving will not be on the domestic front; for the economic future of 80 percent of Americans has already been cast... the slope pointing downward no matter what hopeful lies are manufactured in Washington. Reweaving, for Obama, should take place at the international front; a great opening has appeared before him partly by chance and partly by what other world leaders have to gain as well.
Over the past week, many have been scratching their heads over why JPMorgan is so eager to comply with the DOJ's investigation into the banks misrepresentation of the quality of its RMBS bundled mortgages, having gone so far as to suggest a number that could be as large as $4 billion in cash (with a $7 billion non-cash component), though still shy of the DOJ's $20 billion ask. The reason, as the WSJ reports, may be very simple one: a rat is providing the Feds with information deep from within the house of the whale. "The Justice Department's pursuit of possible criminal charges against J.P. Morgan Chase & Co. is based in large part on a key cooperator from inside the bank who is aiding the government and has provided information suggesting the bank vastly overstated the quality of mortgages that were being bundled into securities and sold to investors, according to people familiar with the matter."
Breaking Bad With Big Bank CEOs: How Bad Bank CEOs Use the Bystander Effect to Dupe Good People Into Working For ThemSubmitted by smartknowledgeu on 09/30/2013 05:09 -0500
This may become the most important article I’ve ever written. But whether it becomes that article or dwells in anonymity is up to you, the reader.