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How do you blow up a (London) whale? In the case of JPMorgan Chase (JPM) - which sees $2B in...

How do you blow up a (London) whale? In the case of JPMorgan Chase (JPM) - which sees $2B in mark-to-market losses and counting - apparently by trying to "hedge" against credit stress by writing protection, and get the whole market playing against you. Despite uncertainty about further losses, Doug Kass is buying the dip though many are more cautious. And don't bet against a resurgence in the Volcker Rule and bank breakup talk, and more downgrades ahead.
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Comments (28)
  • realornot
    , contributor
    Comments (1281) | Send Message
     
    more dirt to come this weekend. If you buy the dip and you will be very very sorry.
    10 May 2012, 07:14 PM Reply Like
  • DettoTheSecond
    , contributor
    Comments (32) | Send Message
     
    Lol, good luck with that r/n. Central Bankers are going to step in.
    10 May 2012, 07:17 PM Reply Like
  • bixbubba
    , contributor
    Comments (292) | Send Message
     
    They will and will and will and will until they don't or can't.
    10 May 2012, 07:20 PM Reply Like
  • Tack
    , contributor
    Comments (14449) | Send Message
     
    One bank has one trader who made one costly mistake, and suddenly all banks are going to fail and the world is going to end. This is the typical knee-jerk hysteria that seems to pass for astute analysis these days.

     

    And, folks wonder why they make bad decisions and can't make any money.
    10 May 2012, 07:21 PM Reply Like
  • ThetaDecay
    , contributor
    Comments (107) | Send Message
     
    I beg to differ: I've made plenty of money buying puts on the financials.
    10 May 2012, 07:25 PM Reply Like
  • Storm Warning
    , contributor
    Comments (156) | Send Message
     
    The logic, after UBS and now JPM, is that none of the others have the risk controls to stop "one trader", either.

     

    It makes sense to some degree, that with investing, opportunities often come and go where you only have time to seize the opportunity and not time enough to do proper risk management on the opportunity, or so it might be thought at the time.
    10 May 2012, 07:26 PM Reply Like
  • CautiousInvestor
    , contributor
    Comments (3062) | Send Message
     
    Just today Moody's issued a warning to global banks that it may downgrade the ratings of seventeen banks because of prop trading and constantly moving into and out of new products. The regulatory rules around risk weighting may not be able to keep up with them.
    10 May 2012, 09:40 PM Reply Like
  • David Urban
    , contributor
    Comments (1036) | Send Message
     
    The downgrade notice was issued back in February for release in mid-May.
    10 May 2012, 09:49 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9973) | Send Message
     
    CI,
    Yes and the banks are trying to fight this as much as possible as it will increase their borrowing costs and reduce profits. But Moody's is probably doing the right thing this time around.
    10 May 2012, 10:21 PM Reply Like
  • Angel Martin
    , contributor
    Comments (1341) | Send Message
     
    Tack, Dimon told us that the "whale's" trades were hedges, no risk. Now they have lost 2 bil.

     

    they have 70 trillion notional in derivatives exposure, but no worries, they are "hedged"...
    10 May 2012, 10:53 PM Reply Like
  • bull_market_somewhere
    , contributor
    Comments (115) | Send Message
     
    you know that the reference obligations are always maturing, being paid off, being prepaid, etc., right?
    10 May 2012, 11:07 PM Reply Like
  • bull_market_somewhere
    , contributor
    Comments (115) | Send Message
     
    too much ZH will do that to you, buddy.
    10 May 2012, 11:08 PM Reply Like
  • winningtrader
    , contributor
    Comments (2476) | Send Message
     
    This is not going to bring JP down. There is no way that one trade can do that. Still it is a big loss and more importantly it is a PROP trade. What on earth were they hedging? They were just speculating in a very big way. What if they have other positions like that?
    Still, among the banks that take credit risk, JP should have the best risk management. If that can happen to them, imagine what can happen to the rest.
    10 May 2012, 07:24 PM Reply Like
  • User 502794
    , contributor
    Comments (122) | Send Message
     
    How do you know it's "one" trade? There clearly is...to use Dimon's word...an 'egregious' lack of oversight and/or a misunderstanding of what they are doing. Rogue traders/trades have indeed brought down some pretty big institutions...remember Barings Bank? Get out of the way of JPM until more is known...
    11 May 2012, 03:36 AM Reply Like
  • dnno
    , contributor
    Comments (6) | Send Message
     
    JPM's own admission is they were idiots and it's important to remember that this was JP and JP alone, not BAC, GS, or WFC. This is a loss, but by no means a catastrophic one. JP will survive and if I weren't already long, I would seriously consider buying. Nice to know Doug Kass won't be shy about it I may even add to the position once the dust settles. Also should what one company does have a major impact on the market as a whole, I don't think so. There are far more pressing issues out there other than JP> And those issues will improve as well.
    10 May 2012, 07:29 PM Reply Like
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
     
    This won't bring JPM down because they ARE THE MARKET. That is the problem, with repo, with OTC swaps, etc. Banning the demand that JPM provides is not a solution.
    10 May 2012, 07:47 PM Reply Like
  • Aristiphones
    , contributor
    Comments (1327) | Send Message
     
    I've been told "when you are the market the market begs to differ."
    10 May 2012, 08:55 PM Reply Like
  • Storm Warning
    , contributor
    Comments (156) | Send Message
     
    Kass is buying? Simply put - that is gambling not investing.

     

    There's no way to fairly evaluate this development while they are still revealing it and make a rational investment decision.

     

    Kass is showing them who is "just sitting there guessing".
    10 May 2012, 07:48 PM Reply Like
  • DettoTheSecond
    , contributor
    Comments (32) | Send Message
     
    You will see him start rolling in $ while doubters starve.
    10 May 2012, 07:49 PM Reply Like
  • dieuwer
    , contributor
    Comments (2573) | Send Message
     
    What about their naked short silver position?
    10 May 2012, 07:53 PM Reply Like
  • Gtarras
    , contributor
    Comments (413) | Send Message
     
    so this Whale story makes rounds for weeks now and we are to expect nobody is going to notice and try to pull "Tilson-I'm-short-Netflix trade on that? lol.

     

    also, $2B in MTM loss??? this is def a big deal, lol.
    10 May 2012, 08:54 PM Reply Like
  • bakkbakk
    , contributor
    Comments (280) | Send Message
     
    Well it isn't like this should be a surprise. After all there was only 13,800 MAY WEEKLY 41 PUTS BOUGHT TODAY!!!!!!!!!!!!!!!!!
    10 May 2012, 09:14 PM Reply Like
  • bixbubba
    , contributor
    Comments (292) | Send Message
     
    Seriously??? Someone just made about $50M on that trade, on less than $7M risked. Hard to imagine it wont get investigated.
    10 May 2012, 09:22 PM Reply Like
  • bakkbakk
    , contributor
    Comments (280) | Send Message
     
    13800 otm(barely) puts the day before expiration. Nothin funny goin on here.
    10 May 2012, 09:28 PM Reply Like
  • 44jfisher44
    , contributor
    Comments (4) | Send Message
     
    I'm surprised by a few comments. No, JPM will not go under for a loss of 2 billion. But that's 2 billion less than they had, it's not chump change. Who knows how far WS beats it down tomorrow, or next week? I'll wait for the dust to settle. I might even short a few banks tomorrow. I think Obama will use this as political ammunition, and possibly talk about more restrictions. That could drive down some prices.
    10 May 2012, 10:18 PM Reply Like
  • Pinocchio1
    , contributor
    Comments (206) | Send Message
     
    44 - It's way more than 2B, It's credit ratings, it's investors fleeing, it's m&a turning their backs, it could very well mean going under.
    I just hope it's not contagious. These financial types are just the worst gamblers, junkies in fancy suits.
    Bill Gross is just Jimmy the Greek without the knowledge nor the brains.
    Dimon? should flee the country today. Hide in Venezuela or Namibia
    11 May 2012, 03:13 AM Reply Like
  • davidbdc
    , contributor
    Comments (3184) | Send Message
     
    I hope we do see a Volker rule. And personally I'm ok with breaking up all the "too big to fail" banks. There should be no such thing in a capitalist society as "too big".

     

    The other issue here is that none of the incentives have changed. I'll bet that if this "whale" had been on the right side of the trade - he'd have gotten a 800 million dollar bonus and been on the cover of fortune magazine. All of this was done with other people's money.

     

    Break up the banks. Let banks take deposits and make loans. Let hedge funds and partnerships play the gunslinger. And when they go BK - let them actually go BK.
    11 May 2012, 02:08 AM Reply Like
  • Pinocchio1
    , contributor
    Comments (206) | Send Message
     
    Time to bring back banks and financial institutions to their natural role and size.
    These guys grew to be these huge parasite organizations which suffocate the economy.
    A bunch of idiots which have no clue in finance, nor economics.
    Gamblers of the worst type.
    JPM should be closed !!! shut down !!!
    and this Dimon guy - this is the last time he should be handed a mic, or interviewed by anyone. Idiot. He is the CEO ands instead of resigning he throw the mud at the people who work for him. I am sure they deserve a good beating, BUT DIMON HIMSELF SHOULD GO TODAY !!!
    11 May 2012, 02:53 AM Reply Like
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