JPMorgan trading losses may hit $9 Billion

June 29, 2012 by · Leave a Comment
Filed under: Stock Market News 

I think what we are seeing here is not about JPMorgan as a large financial institution, but more on what can go wrong with derivatives when they basically unregulated and in a sense, naked, being that little or no capital is being set aside to cover these bets.   Personally, I think we have way too many derivatives period, but regardless, deposit taking banks should not be in this market at all, it is totally irresponsible because with out regulators track record, it ultimately puts the tax paying citizenry as risk because this banks are so large that we politically at this point can’t fathom letting them fail if they got out of hand.

In this reality, we should tell them how it is going to be and force the banks that take deposit or are covered by the FDIC, move these operations on to a hedge fund that they would capitalize separately.  With this new company, you can let it fail and the bank shareholders and bond holders would lose out, but only what they put into it.   I am hoping this will be the learned lesson we need to enforce this.  I am not saying their is no place for derivatives (still debatable), but we need to be prudent.

We should not let the influence of any powerful institution curtail us for doing what is needed even if it is unpopular.   I have faith in banks and other financial institutions that they will always find out new innovations to make money and get in trouble with.   But this issue here is a dead horse at this point and it should be easy for us to put in simple rules and a timeline so the banks can divest these assets and put them into the proper vehicle.  They can not have their cake and eat it too on our dime, they need to spend their own (and they have many).

New York Times – Losses on JPMorgan Chase’s bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation.

When Jamie Dimon, the bank’s chief executive, announced in May that the bank had lost $2 billion in a bet on credit derivatives, he estimated that losses could double within the next few quarters. But the red ink has been mounting in recent weeks, as the bank has been unwinding its positions, according to interviews with current and former traders and executives at the bank who asked not to be named because of investigations into the bank.

The bank’s exit from its money-losing trade is happening faster than many expected. JPMorgan previously said it hoped to clear its position by early next year; now it is already out of more than half of the trade and may be completely free this year.

As JPMorgan has moved rapidly to unwind the position — its most volatile assets in particular — internal models at the bank have recently projected losses of as much as $9 billion. 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.

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