Photo: Mark Wilson/Getty Images
JP Morgan shocked everyone this afternoon. Their 10-Q revealed that they face way, way more losses than we thought. There’s a possibility of $2 billion losses to the bank, likely because of a trader named Bruno Iksil, the so-called London Whale.
The updates are in chronological order.
– Dimon is starting off the conference.
– Possibly a $800 million loss in corporate department after tax.
– JPM will likely take a $2 billion losses because of a synthetic credit position.
– CIO has $2 billion in investment portfolio, unrealized gain of $8 billion.
– CIO VaR changed from 1st quarter report. Formerly at 67, now it is at 129. JPM had been using a new model that is flawed, and went back to old model.
– “We’ve already changed some policies and procedures as we have gone along.”
– Dimon says this has been an egregious mistake, self-inflicted. Violates how he runs the company, this is NOT how he wants to run a business.
– More details will be discussed in 2Q call.
– Dimon said company first took action to look into this when they started bearing huge losses in the 2nd quarter.
– Dimon taking questions now.
– “This was a unique thing we did…we’ll change appropriately as we get our hands around it.”
– “It could easily get worse this quarter,” Dimon says. It is likely they’ll be volatile for the next 2 quarters.
– “The original premise of the synethic credit exposure was to hedge the company in a stress credit environment. That was the original proposition for the portfolio.”
– But, Dimon adds that hedging the portfolio was a bad strategy and it was poorly monitored.
– “This trading may not violate the Volcker Rule, but it violates the Dimon principle.”
– Bank analyst Mike Mayo asks: “Can mistakes be made in other departments?” Dimon answers—”We’re not in the business where we’re not going to make mistakes… I can never promise you no mistakes. This one we’ll put in the egregious category.”
– JPM is down over 6.5%. Ouch.
– “It was there to deliver a positive result in a negative environment.” Dimon says on the hedge.
– The strategy meant to hedge made everything worse. “It was intended to hedge tail risk but it morphed over time.”
– Dimon must’ve said it was “Poorly monitored, poorly structured, poorly reviewed” at least 20 times by now.
– This does not change the analysis and the argument against Volcker. But the timing is “unfortunate” and will play right into hands of pundits for Volcker, Dimon says.