JPMorgan Chase just announced that they would be holding a conference call at 5 pm, and shares of JPM are down 5% in after-hours trading.There’s no doubt that the call will be related to the 10-Q that the bank just filed, and everyone is buzzing about a $2 billion derivatives-related loss that the bank took related to its chief investment office.
It’s possible that this has something to do with Bruno Iksil, the so-called London Whale. It was reported in early April that Iksil, a credit derivatives trader in JPM’s London office, had a position so large that he was rattling the credit markets.
Here’s the paragraph from JPM detailing that loss, it’s on page 9 of the 10-Q.
Since March 31, 2012, CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed. The losses in CIO’s synthetic credit portfolio have been partially offset by realised gains from sales, predominantly of credit-related positions, in CIO’s AFS securities portfolio. As of March 31, 2012, the value of CIO’s total AFS securities portfolio exceeded its cost by approximately $8 billion. Since then, this portfolio (inclusive of the realised gains in the second quarter to date) has appreciated in value.
The Firm is currently repositioning CIO’s synthetic credit portfolio, which it is doing in conjunction with its assessment of the Firm’s overall credit exposure. As this repositioning is being effected in a manner designed to maximise economic value, CIO may hold certain of its current synthetic credit positions for the longer term.
Remember, JPM Morgan CEO Jamie Dimon also called London whale issue a “tempest in a teapot” during JPM’s first quarter earnings call. Seems like that may not be the case anymore.