Three Views of a Secret

JPMorgan’s Hedging Position May Lose $5 Billion, or More, or be Wound Down by the End of the Year

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The world may never know, or at least not for a while: As the learned folks at Alphaville report, Morgan Stanley came out with a note last week suggesting the trading losses may touch $5 billion, or $2 billion more than JPMorgan’s estimate. The reasoning:

“The question is, how does Jamie Dimon expect only a $1B+ future loss over 2-3 quarters if a 6-week move drove a $2B+ mark-to-market loss. Either JPM has already started to reduce the size of this position materially, or management’s outlook for volatility is lower, which seems odd given rising risks in Europe and US growth stabilizing after recent acceleration. As a result, we have a slightly higher mark-to-market loss estimate of $5b vs. Dimon’s $3b.”

Indeed, the instability in Europe is enough to give us to wonder how Jamie Dimon could be so certain, as he appeared to be at this morning’s Deutsche Bank investors conference, that his firm would “wrestle the problem down” by the end of the year. “I’m not sitting here worried about the ultimate loss on this thing,” Mr. Dimon said. “We’re hoping by the end of the year the volatility will be low enough that you won’t care.”
As the manager of one of the hedge funds that has profited at JPMorgan’s expense told Bloomberg Television this morning, exiting the positions won’t be straightforward. Said BlueCrest Capital Management CEO Eric Platt: “If we end up with a catastrophe in Europe in the short run, they’re probably not positions that anyone would want to have.”

If Mr. Dimon knows, he wouldn’t say. He did reveal that the bank would suspend its share buyback program out of deference to regulators (which, bummer, because the stock is off something like 20 percent since the losses were disclosed). And perhaps to show that his firm was getting back to business as usual, Mr. Dimon took a swipe at restrictions on market-making.

“If a company in the US cannot actively make markets, than it leaves a Deutsche Bank free to do what they want,” Mr. Dimon said. “As much as clients love us, they’ll say, ‘you know we love you Jamie,’ but…”
Which sentiment we guess is fine, since JPMorgan didn’t lose $2 billion (and counting) of client funds.

[Eric Piermont/AFP/Getty Images] JPMorgan’s Hedging Position May Lose $5 Billion, or More, or be Wound Down by the End of the Year

Filed Under: Politics, News & Politics, Morgan Stanley, Jamie Dimon, JPMorgan, London whale, BlueCrest Capital, CIO