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Bloomberg Bombshells re: JP Morgan $2B Loss

Posted by Larry Doyle on May 14, 2012 7:54 AM |

Bloomberg just reported a couple of bombshells which, when digested, strike right at the integrity and veracity of JP Morgan CEO Jamie Dimon’s comments a month ago.

What did Bloomberg report?

The JPM traders managing the risk within this portfolio were known to execute trades over the course of the last few days of the month. Why is that so interesting and important?

If the firm had such large and unwieldy positions, this end of month trading activity would likely be seen as an indication that JP Morgan was trying to influence the month end pricing valuations of the indices in question. Those pricing valuations would obviously directly correlate with reported profits and losses. 

In layman’s terms, active and aggressive end of month trading for the purpose of influencing a month end valuation is known as “banging the close.” I addressed this type of trading in August 2010 when I wrote, “Markets Don’t Go Up, They’re Put Up”:

…the simple fact is variations of ‘banging the close’ or assorted other techniques can be used to illegally move many markets. Although I never put much credence in those who promoted conspiracy theories and tales of market manipulation, I now do not discount those who hold these feelings —  including my uncle, a world class cynic and longstanding broker. What did he share with me a few months back? He offered, “Larry, it’s a racket. Markets don’t go up, they’re put up.” I chuckled. . . and he responded, . . . ”You think I’m kiddin’ ya?”

How could this month end activity have been detected?

If JP Morgan’s derivatives trades had to be reported via TRACE (trade reporting and compliance engine), the regulators who are supposed to oversee JP Morgan’s activity could have witnessed and regulated the risk within JP Morgan’s investment portfolio MUCH earlier. I posed this very challenge in mid-2009 in writing, Can We TRACE JP Morgan’s Business?

What other battles are being waged by Wall Street firms looking to defend their turf at the expense of consumers and investors? Credit cards and credit derivatives. Which Wall Street firm has the greatest combined exposure to these businesses? None other than JP Morgan Chase.

In regard to derivatives activity, JP Morgan has a dominant position in the market. Why? Their strong capital position, enormous balance sheet, and strong credit rating make them an attractive counterparty for customers. Make no mistake, JP Morgan has a license to ‘print’ money, and a lot of it, across the entire derivatives platform.

What should regulators compel them to do? JP Morgan and every other financial firm on Wall Street should have to report every derivatives transaction to a system known as TRACE, which stands for Trade Reporting and Compliance Engine.

Bloomberg launched a second and larger bombshell this morning, as well. Erik Schatzker referenced the fact that Dan Pinto, JP Morgan’s European head of investment banking, had taken over the management of the risk within this portfolio in March of this year. Yes, March. That is, a month before Dimon said this situation was little more than a tempest in a teapot.

If, in fact, JP Morgan was engaged in a version of ‘banging the close’ and the CIO’s office had ceded control and oversight of these positions, then what does this say about Mr. Dimon? In my opinion, if these allegations as reported by Bloomberg are accurate, then Dimon has lost ENORMOUS credibility in the marketplace. One may go so far as to ask the question of Mr. Dimon that has been asked of many a Wall Street CEO.

What question is that?

How do you know when Jamie Dimon is lying?

When his lips move.

Navigate accordingly.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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