Vanity Fair on Dimon
Weekend reading on Dimon, management, big positions and much more. From Vanity Fair.
In first announcing the trading losses, at a hastily convened conference call for analysts and the media on May 10, Dimon knew he would get skewered. “It plays right into the hands of a bunch of pundits out there,” he said at the time. “But that’s life…. We have egg on our face. We deserve any criticism we get.” After spending much of July 13 again explaining the trading loss to the media and to research analysts—including making the stunning admission that the traders in London may have intentionally mismarked the trades to make them look less egregious, a potential illegality that the Justice Department is still investigating—the exhausted Dimon got an unexpected call from Tom Brady, the star quarterback of the New England Patriots. (Jimmy Lee, a legendary sports fan, had arranged for it.) Brady reminded Dimon that even Super Bowl champs have bad days and told him “to hang in there.” “I was surprised he even knew who I was, to tell you the truth,” Dimon says.
On the bus tour, Dimon might have hoped for a respite from the trading blunder. Unfortunately, the logo on the Vineyard Vines polo shirts that the JPMorgan Chase executives were wearing through the heartland was a whale, and so, there it was—on the sleeve of every corporate shirt—the very symbol of Dimon’s singular management failure. The subject of the disastrous bet came up at each stop, and each time Dimon had his pat response ready: “The London Whale drama has been harpooned, beached, eviscerated, cremated, and killed. So help me God! It’s fish food.”
GATA’s Chris Powell on the Silver Manipulation Probe & the Fed Gold Audit!
Laureen Lyster interviews Chris Powell on gold and silver manipulation, the Fed and much more.
Much watch video below.
Whale of Problem
Crucial questions for Dimon to be answered on Friday. How, what, who, why….
Video by Bloomberg.
Did anyone not sell the news?
Peter Tchir of TF Market Advisors on the Euronews, the acknowledgment of the crisis and the way forward.
FAITH
Basically everyone out there is saying to sell the news. Virtually everything I read points out flaws in the announcement. Why the plan won’t work. Who will vote against it. That it is too vague. That it doesn’t do enough. And largely I agree. The plan is vague. Some parts of it will probably change. It isn’t big enough. It doesn’t do enough, BUT, it is yet another clear sign that Europe is changing its attitude towards the crisis.
The bet was never that this summit would produce some “silver bullet”. As I wrote earlier in the week, it is only bears that thought the bulls needed “Eurobonds”. Eurobonds were not a necessary outcome to spark this rally. Nothing is solved, heck, it’s not even fixed, but every sign is pointing to Europe moving in the right direction. Germany and France in particular are using their borrowing ability to support the weakest countries. Banks are finally getting set to get recapitalized without being a major drag on the countries they reside in.
Based solely on the announcement, would I be constructive on risk? No. This particular announcement doesn’t do that much, but I’m long risk because it does enough. It pushes things forward and is another clear indication that Europe is willing to use their existing tools in a more aggressive way than they have in the past. It paves the way for the ECB to act. Over time, it may even lead to changes in the rules, though that is more far-fetched. In any case I view the outcome as constructive, and am very encouraged by the fact that virtually no one is saying it is good. This continues to remind me of the original LTRO where everyone downplayed it (myself included), yet it was a catalyst for a big move in stocks over time. 2012 may be 2011, but it is looking more and more like November/December 2011 rather than June/July 2011.
JP Morgan – Reacting to Headlines is easier than Thinking
Guest post by Peter Tchir of TF Market Advisors on the JPM Trade.
Algos, Twitter, or Laziness?
I am surprised by the market reaction to the NY Times article about JP Morgan’s whale trade. The headline JP Morgan trading loss may reach 9 billion seems devastating. I can understand why a computer would react to the headline maybe programs missed the subtlety of the word “may”. But why are so many people reacting so quickly and selling the stock when the details don’t really say anything new? I thought Twitter restricted you from writing more than 140 characters, but maybe it has had a side effect of restricting people to reading 140 characters?
The loss amount referenced is useless:
So let’s look at what was written about the loss.
In April, the bank generated an internal report that showed that the losses, assuming worst-case conditions, could reach $8 billion to $9 billion, according to a person who reviewed the report.
This is it. A report from April, where under worst case conditions, the loss could reach $8 to $9 billion. So this isn’t a report from June. It isn’t a current estimate of the losses. It is long before Mr. Dimon actually told politicians that JPM would have a “solid” profitable quarter. As arrogant as he may or may not be, it would seem a stretch to believe he would tell such a whopper to politicians on national TV.
Taibbi and Yves Smith on Banks, bail outs, greed and psychopathy
Must watch video by Bill Moyers below.
Iksil, big bets, VaR and JPM
As we suggested back when the JPM whale trade was announced, the trade(s) was supervised by hopefully more than one risk manager, with the trades being that large. Bloomberg reports that Mr Iksil traded big size before, and was used to carry more VaR solo, than the bank in total. VaR or not, the question is most probably as, often in finance, “Did the bosses understand what kind of trades Iksil was putting on,( and what the closing cost would be)”? From Bloomberg.
Iksil’s value-at-risk, a measure of how much a trader might lose in one day, was typically $30 million to $40 million even before this year’s buildup, said the person, who wasn’t authorized to discuss the trades. Sometimes the figure, known as VaR, could surpass $60 million, the person said. That’s about as high as the level for the firm’s entire investment bank, which employs 26,000 people.
Investigators are examining how long senior executives knew about Iksil’s swelling bets at the chief investment office before losses approached $2 billion. One focal point is why the formula used to calculate Iksil’s VaR was altered early this year, cutting the reported risk by half. The change followed an internal analysis in late 2011 and was approved by top risk executives, said a person close to the bank. About the same time, half a dozen managers typically involved in such decisions moved to new jobs.
“If it was something that had that large an impact, it would have to be agreed to at the very-most-senior level within risk management,” probably including the bank’s chief risk officer, said Steve Allen, a former head of risk methodology for JPMorgan who retired in 2004. “You’re not going to make a change of that magnitude on the basis of one risk manager.”
JPMorgan Gave Risk Oversight to Museum Head-good enough?
Surprised? Hardly. This is not a fairy tale, but reality. Corporate governance 101 anybody? From Bloomberg Businessweek.
The three directors who oversee risk at JPMorgan Chase & Co. (JPM) (JPM) include a museum head who sat on American International Group Inc.’s governance committee in 2008, the grandson of a billionaire and the chief executive officer of a company that makes flight controls and work boots.
What the risk committee of the biggest U.S. lender lacks, and what the five next largest competitors have, are directors who worked at a bank or as financial risk managers. The only member with any Wall Street experience, James Crown, hasn’t been employed in the industry for more than 25 years.
“It seems hard to believe that this is good enough,” said Anat Admati, a professor of finance at Stanford University who studies corporate governance. “It’s a massive task to watch the risk of JPMorgan.”
Scatological Finance
Keiser on bank runs, manipulation, whales, hedging activities, JPM and much more.
Keiser and Stacy going nuts….
Video below.
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