A big bank lost $2b in synthetic hedge! Gambling must stop!

Gohhock SG

Yah, with the mainstream not backing action to seek fair treatment from the top 0.5%, the

outlook for the mainstream's future is going to be dimmer and dimmer. When I see buffaloes often win if they gang up against lions and yet they do not know how to do that consistently to protect themselves, I felt very sad for them. However, it is even so ridiculous that intelligient mainstream cannot stay united against the top 0.5% and there is no hope at all. For time since memorial, the mainstream people are so gullible to be fooled by the top 0.5% hitting on wrong issues like immigrants, competition in schools, etc and not worry about this very big issue that cause the rich poor divide to keep galloping wider!

M the name SG

JPMorgan to replace investment chief

Bank scrambles to stem ire after disclosure of $2.5b loss

New York: Stung by a huge trading loss, JPMorgan Chase will replace its chief investment officer, one of the top women on Wall Street, in an effort to stem the ire that the bank faces from regulators and investors.

It is the first departure since Mr Jamie Dimon, the bank’s chef executive, disclosed the stunning US$2 billion (S$2.5 billion) loss on Thursday.

JPMorgan said Ms Ina Drew, 55, will retire after 30 years at the firm.

Mr Matt Zames, head of global fixed income in the investment bank, will succeed Ms Drew as chief investment officer, the bank said yesterday in a statement.

The huge scope of the complex credit bet caught senior bank officials off-guard when it began to sour last month, and has set off renewed regulatory scrutiny of the industry. Mr Dimon has largely sidestepped blame for the loss, although he has offered numerous apologies for the blunder – the biggest of his eight-year tenure at the nation’s largest bank.

The statement did not mention two traders who worked for Ms Drew, who are also expected to leave shortly. One news report said the entire staff of the bank’s London investment office is at risk of dismissal.

Mr Zames was hired by JPMorgan from Credit Suisse First Boston in 2004 to run trading in treasuries, agencies and interest-rate swaps and options.

In 2009, Mr Zames and Daniel Pinto were picked to run fixed income. Under Mr Zames and Mr Pinto, JPMorgan has become the top bank globally in fixed-income trading.

Mr Zames previously worked at hedge fund Long-Term Capital Management LP, which collapsed in 1998.

Ms Drew’s exit is a precipitous fall for a trusted lieutenant of Mr Dimon. Last year, she earned about US$14 million, making her the bank’s fourth-highest-paid officer. From her desk in Manhattan, she oversaw the London office that assembled the trade, a growing unit overseeing a portfolio of nearly US$400 billion.

A skilled trader who once said she relished a crisis, Ms Drew became a liability for the firm. The announcement of the trading loss caused JPMorgan’s shares to plunge 9.3 per cent on Friday. It is unclear what type of severance package Ms Drew will receive.

Mr Dimon, who will face shareholders at the company’s annual meeting today, has been on a public campaign of contrition in recent days.

Famously confident and even cocky, he repeated his apologies in a broadcast on Sunday of NBC’s Meet The Press.

“We made a terrible,egregious mistake and there’s almost no excuse for it,” Mr Dimon said, adding that the bank was “sloppy” and “stupid”. He also acknowledged that the timing of the loss was a gift for advocates of more stringent regulation.

“It’s not surprising that officials there are taking the fall, but this is one of the fastest movements I have seen,” said analyst Michael Mayo, with Credit Agricole Securities in New York. “Mr Dimon get an ‘A’ for moving to stem the wrath of regulators, but an ‘F’ for not finding the problem in the first place.”

With the furore intensifying, former JPMorgan executives said, Ms Drew was clearly feeling pressure to step down.

Executives said that within the last several months, Ms Drew told traders at the bank’s chef investment office to execute trades meant to shield the bank from the turmoil in Europe.

But when the market tides abruptly shifted recently, Ms Drew’s instructions to traders to trim what had become a gigantic bet came too late to avoid racking up losses that could eventually exceed the current US$2 billion estimate.

Besides Ms Drew, Mr Achilles Macris, a top JPMorgan official in London, is expected to depart, as is senior London trader Javier Martin-Artajo.

Also under scrutiny is another of Ms Drew’s subordinates Bruno Iksil, a trader in London who was nicknamed “the London whale” as the positions he took were so large they distorted credit prices.

New York Times, Bloomberg

Banks trend fine line in trading

New York: When JPMorgan Chase revealed its US$2 billion (S$2.5 billion) trading loss last week, it looked as through the big Wall Street banks were up to their old tricks, using their government-backed funds to make risky trades in a misguided effort to improve their profits.

But even banks that focus mainly on good, old-fashioned lending do their fair share of high-stakes trading.

While few other banks, if any, pursue the complex strategies that led to JPMorgan’s losses, many traditional lenders regularly buy and sell securities, and make bet with derivatives, as part of their core operations. Financial firms say such activities allow them to earn a basic return on the deposits they collect and to offset balance sheet risks.

These practices are creating a headache for regulators who are trying to devise new rules to prevent another financial crisis.

Regulators are finalising the so-called Volcker Rule, which would ban banks from making speculative bets with their own money. But they face a basic problem: What is proprietary trading?

Such activities are easy to spot when financial firms run independent trading units devoted to making profits. But regulators find it harder to tell when other activities – like market-making and portfolio hedging – cross the line. So far, regulators do not seem too concerned that the JPMorgan blowup will have broader ramifications on the banking system. The Financial Stability Oversight Council, the panel set up in the wake of the crisis to identify and respond to threats to the banking sectors, is not planning a special meeting to discuss JPMorgan, said a source.

Big banks, even those with little presence on Wall Street, contend that their trading activities are part of prudent risk-management. Without the ability to invest in bonds and other securities, companies argue that they would not be able to make loans or extend credit as easily.

While large part of the available-for-sale bonds is in instruments deemed safe, like Treasurys, the securities can produce big trading gains, especially if their purchases are well-timed.

JPMorgan said its US$2billion loss stemmed from a hedge related to its available-for-sales securities. Specifically, the bank was using a relatively new type of credit derivative that mostly trades off exchange in opaque markets.

After the JPMorgan losses, some analysts say banks could deliver more nasty surprises as they build up big positions in bonds and derivatives, especially if the economy remains weak and interest rates do not behave as banks expect.

“The biggest issue for the next five years in banking is how banks manage their balance sheets in such unprecedented times,” said analyst Mike Mayo.

New York Times

prime,news, The Straits Times,Tuesday, May 15, 2012, Pg A14

FunGuyWorkaholic SG

That 2 billion is now 3 billion btw... and that guy who made the bet is infamously known as the London Whale... it's a insulting name because it means you're a big fat idiot with loads of cash to be sucked dry...

In case you're feeling bad for JP Morgan, there's no need to be... after losing 3 billion, they still have another 3 billion profits to go...

And also they still trying to stop the bleeding, because that 3 billion is still ongoing slowly towards 4 billion... and they can't stop just like that because the bet is so big that there's not enough people on the other side of the market to absorb the bet with.

FunGuyWorkaholic SG

In case you're feeling bad for that trader who made such massive losses for JP Morgan, there's no need to feel bad, he makes millions of dollars and still richer than majority of people =)

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