Deicide
11th May 2012, 02:20
lolz
PMorgan Chase announced a surprise $2bn trading loss on credit derivatives trading, which chief executive Jamie Dimon blamed on “errors, sloppiness and bad judgement” and warned “could get worse”.
The shock disclosure, made after the market closed in a regulatory filing, sent shares in the bank down by about 6 per cent and prompted renewed calls for tougher regulation.
JPMorgan said the mark-to-market losses came in the bank’s chief investment office, a unit set up to invest excess deposits, which has drawn controversy after hedge funds alleged it was taking big proprietary bets.
Proprietary trading is set to be banned in the US by the forthcoming “Volcker rule” and the losses revealed on Thursday are likely to stiffen regulators’ resolve to enforce that ban broadly.
Carl Levin, a Democratic senator who has pushed for a strict interpretation of the rule, said “the enormous loss” was “just the latest evidence that what banks call ‘hedges’ are often risky bets”. He called for “tough, effective standards... to protect taxpayers from having to cover such high-risk bets”.
“It plays in to the hands of a bunch of pundits out there,“ Mr Dimon said on a hastily convened conference call. “This trading may not violate the Volcker rule but it violates the Dimon principle.”
In his opening remarks, he accepted responsibility and apologised. “These were grievous mistakes, they were self inflicted, we were accountable and we happened to violate our own standards and principles by how we want to operate the company. This is not how we want to run a business.”
“We will admit it, we will learn from it, we will fix it, and we will move on,’’ he said.
The mistake was “one we put in the egregious category and I understand fully why you or anybody else will question us generally.”
Mr Dimon has long taken pride in JPMorgan’s superior risk management and its “fortress balance sheet”. It is a blow to the former and the bank’s core capital level would be reduced from 8.4 per cent of risk-weighted assets to 8.2 per cent under new Basel III rules, Mr Dimon said.
“The issue is about control,” said Mike Mayo, analyst at CLSA. “What does this say about controls at a bank that is better than average? With major markets moves this quarter this is a preview of potentially more issues to come as it relates to basic asset-liability management.”
The stated goal of the CIO is to hedge JPMorgan’s loan portfolio and invest excess deposits. Its $2bn losses, incurred in less than six weeks, were offset by profits elsewhere. JPMorgan said that the division’s overall performance in the second quarter was for an estimated loss of about $800m compared with an expected $200m profit.
Turbulent credit markets exacerbated flaws in the trading strategy, JPMorgan said. Since the company does not want to conduct a fire sale of its positions, it is stuck with the exposure for some time.
The re-hedging of the portfolio, he said, was “a bad strategy, it was badly executed. it became more complex, it was poorly monitored.”
“There is going to be a lot of volatility here and it could easily get worse this quarter – or better, but could easily get worse – and the next quarter we also think we have a lot of volatility,” Mr Dimon said.
JPMorgan also restated its “value at risk”, a measure of maximum possible daily losses, of the CIO in the first quarter from $67m to $129m.
http://www.ft.com/cms/s/0/828376bc-9ae4-11e1-94d7-00144feabdc0.html#axzz1uWG2cHHm
PMorgan Chase announced a surprise $2bn trading loss on credit derivatives trading, which chief executive Jamie Dimon blamed on “errors, sloppiness and bad judgement” and warned “could get worse”.
The shock disclosure, made after the market closed in a regulatory filing, sent shares in the bank down by about 6 per cent and prompted renewed calls for tougher regulation.
JPMorgan said the mark-to-market losses came in the bank’s chief investment office, a unit set up to invest excess deposits, which has drawn controversy after hedge funds alleged it was taking big proprietary bets.
Proprietary trading is set to be banned in the US by the forthcoming “Volcker rule” and the losses revealed on Thursday are likely to stiffen regulators’ resolve to enforce that ban broadly.
Carl Levin, a Democratic senator who has pushed for a strict interpretation of the rule, said “the enormous loss” was “just the latest evidence that what banks call ‘hedges’ are often risky bets”. He called for “tough, effective standards... to protect taxpayers from having to cover such high-risk bets”.
“It plays in to the hands of a bunch of pundits out there,“ Mr Dimon said on a hastily convened conference call. “This trading may not violate the Volcker rule but it violates the Dimon principle.”
In his opening remarks, he accepted responsibility and apologised. “These were grievous mistakes, they were self inflicted, we were accountable and we happened to violate our own standards and principles by how we want to operate the company. This is not how we want to run a business.”
“We will admit it, we will learn from it, we will fix it, and we will move on,’’ he said.
The mistake was “one we put in the egregious category and I understand fully why you or anybody else will question us generally.”
Mr Dimon has long taken pride in JPMorgan’s superior risk management and its “fortress balance sheet”. It is a blow to the former and the bank’s core capital level would be reduced from 8.4 per cent of risk-weighted assets to 8.2 per cent under new Basel III rules, Mr Dimon said.
“The issue is about control,” said Mike Mayo, analyst at CLSA. “What does this say about controls at a bank that is better than average? With major markets moves this quarter this is a preview of potentially more issues to come as it relates to basic asset-liability management.”
The stated goal of the CIO is to hedge JPMorgan’s loan portfolio and invest excess deposits. Its $2bn losses, incurred in less than six weeks, were offset by profits elsewhere. JPMorgan said that the division’s overall performance in the second quarter was for an estimated loss of about $800m compared with an expected $200m profit.
Turbulent credit markets exacerbated flaws in the trading strategy, JPMorgan said. Since the company does not want to conduct a fire sale of its positions, it is stuck with the exposure for some time.
The re-hedging of the portfolio, he said, was “a bad strategy, it was badly executed. it became more complex, it was poorly monitored.”
“There is going to be a lot of volatility here and it could easily get worse this quarter – or better, but could easily get worse – and the next quarter we also think we have a lot of volatility,” Mr Dimon said.
JPMorgan also restated its “value at risk”, a measure of maximum possible daily losses, of the CIO in the first quarter from $67m to $129m.
http://www.ft.com/cms/s/0/828376bc-9ae4-11e1-94d7-00144feabdc0.html#axzz1uWG2cHHm