JPMorgan joins Goldman Sachs keeping Italy derivatives risk murky

November 17, 2011 by · Leave a Comment
Filed under: Industry News 

$5 trillion is quite a bit of debt insurance to have exposure on.  This could be of concern, both banks should clear up where a majority of this exposure originates before this rumor-mill gets out of control.  I would assume that debt insurance is purchased in places where there was enough risk to bring that type of protection into the picture.  I would think that the emerging portion of the Eurozone would be of higher risk.   Banks need to set this straight soon, they already still haven’t fully disclosed and written down all they liabilities they still have from the U.S. real estate bubble of 2007.

Bloomberg (Christine Harper) – JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS), among the world’s biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally.  Just don’t ask them how much of that was issued by Greece, Italy, Ireland, Portugal and Spain, known as the GIIPS.

As concerns mount that those countries may not be creditworthy, investors are being kept in the dark about how much risk U.S. banks face from a default. Firms including Goldman Sachs and JPMorgan don’t provide a full picture of potential losses and gains in such a scenario, giving only net numbers or excluding some derivatives altogether.

“If you don’t have to, generally people don’t see the advantage to doing it,” said Richard Lindsey, a former director of market regulation at the U.S. Securities and Exchange Commission who worked at Bear Stearns Cos. from 1999 through 2006. “On the other hand, if there were a run on Goldman Sachs tomorrow because the rumor was that they had exposure to Greece, you’d see them produce those numbers.”

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