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HomeJP Morgan Shuts Proprietary Trading
Posted by Larry Doyle on September 1st, 2010 5:11 AM |
Two weeks ago on an afternoon visit to New York City, I was struck by the changed tone, atmosphere, and demeanor during the meetings I had with a number of Wall Street professionals. The fact that the tone has changed does not necessarily mean that the industry as a whole is entirely chastened by the failings—if not worse—both going into and coming out of the crisis. Without deeply meaningful efforts and accompanying results to promote real transparency and increased disclosures, the industry will continue to fight to maintain ‘business as usual.’ It is an uphill battle.
Further evidence of this reality is provided today with the news that JP Morgan is shutting down its proprietary trading operations. Bloomberg reports, JP Morgan Said to End Proprietary Trading to Meet Volcker Rule:
JPMorgan Chase & Co. told traders who bet on commodities for the firm’s account that their unit will be closed as the company, the second-biggest U.S. bank by assets, starts to shut down all proprietary trading, according to a person briefed on the matter.
The bank eventually will close all in-house trading to comply with new U.S. curbs on investment banks, said the person, who asked not to be identified because New York-based JPMorgan’s decision hasn’t been made public. (more…)
Mortgage Servicers Are Hugely Conflicted
Posted by Larry Doyle on July 23rd, 2010 12:57 PM |
Information is everything. Those who control the information have immense power. The allegiances of those in control of the info obviously have an enormous impact on how the information is processed and dispensed. The potential for conflicts of interest are significant. Standard business fare, correct? Have these conflicts played out on Wall Street? All too often. How so?
I have repeatedly highlighted the conflicts within our financial regulatory structure. We also know that the credit rating agencies have been enormously conflicted. Anywhere else? Let’s enter the world of mortgage servicing, ….. (more…)
Kevin Dillon Meet Peter Sivere
Posted by Larry Doyle on July 8th, 2010 7:10 AM |
A recent headline in my local newspaper highlights a whistleblower case involving JP Morgan and an employee named Kevin Dillon. The article, JP Morgan Employee Files Whistle-Blower Lawsuit, details how Dillon was rebuffed while he attempted to report alleged accounting improprieties by a Texas based hedge fund, Highland Capital Management. This fund has a prime brokerage relationship with JP Morgan.
Dillon has brought suit against JP Morgan for alleged mistreatment as a result of his blowing the whistle. Dillon and JP Morgan are certainly not the only individuals and firms involved in an employee dispute over procedures and treatment. So, why am I writing about this case? For the very simple reason that Mr. Dillon will hopefully read my commentary and know that he is not the first individual involved in a whistleblower dispute with JP Morgan.
Regular readers of Sense on Cents may recall the story of Peter Sivere, a JP Morgan employee who blew the whistle on his employer for allowing after hours trading of mutual funds by a high profile hedge fund. In the process of performing his duties, Sivere engaged attorneys from the SEC. What happened in the midst of engaging these attorneys? (more…)
Wall Street’s Oligopoly Flexes Its Muscle
Posted by Larry Doyle on March 15th, 2010 12:51 PM |
Pricing power is everything.
What businessman wouldn’t like greater control and influence over the pricing of his goods and services? How are prices determined? In a capitalist system, prices are a function of the competitive forces of supply and demand. What happens when competition dwindles? Pricing power for the suppliers increases. How does competition dwindle? When barriers to entry are so high, or competitors go out of business. This economic reality is also known as an oligopoly and it defines the current state of our financial industry known as Wall Street.
Is Wall Street taking advantage of the lessened competition and flexing its muscle to drive revenue? Is the Pope Catholic? (more…)
Where is Wall Street Hiding Hundred Plus Billion in Lo$$es?
Posted by Larry Doyle on March 8th, 2010 11:24 AM |
U.S. Rep. Barney Frank (D-MA)
Banks are increasingly healthy, right? Our nation’s accounting rules promote real transparency and integrity in our financial reporting, right? Housing is bottoming, right? No, no, and no!
Why so pessimistic, you may ask? I am not pessimistic at all. I am merely searching for the truth in the midst of the smoke and mirrors on Wall Street and in Washington.
Thank you to our friends at 12th Street Capital for sharing a recently released letter from Congressman Barney Frank imploring the four largest banks involved in mortgage originations to write off second liens they are holding on their books at inflated values.
Why does Congressman Frank believe these loans need to be written off? (more…)
Volcker Rule Gains Support of Former Treasury Secretaries
Posted by Larry Doyle on February 22nd, 2010 3:59 PM |
Score major points for former Fed Chair Paul Volcker in his pursuit to restructure Wall Street. How so?
A letter in this morning’s Wall Street Journal from five former Treasury Secretaries endorses Volcker’s proposal to limit proprietary trading activities in our largest banks. The letter reads,
We who have served as secretary of the Treasury in both Republican and Democratic administrations write in support of the proposed legislation to prohibit certain proprietary activities of commercial banking organizations—the so-called Volcker rule, as part of needed financial reform (“It’s Time for Financial Reform Plan C,” by Alan Blinder, op-ed, Feb. 16).
The principle can be simply stated. Banks benefiting from public support by means of access to the Federal Reserve and FDIC insurance should not engage in essentially speculative activity unrelated to essential bank services. (more…)
How Tim Geithner Screwed the American Taxpayer
Posted by Larry Doyle on January 7th, 2010 9:31 AM |
Tim Geithner, then head of the New York Fed, blinked and screwed the American taxpayer out of billions of dollars in the process. How so?
Geithner and his cronies in Washington have misrepresented–if not outright lied–about the payments to both domestic and foreign banks in settling exposures to then failing AIG. While politicians and pundits alike will reference the precarious nature of the time and heat of the moment to defend Geithner and his cronies, the simple fact is the settlement of the AIG swaps at 100 cents on the dollar was nothing short of one of the greatest heists in our country’s history.
This heist transferred multiple billions of dollars from the American taxpayer to the likes of Goldman Sachs, JP Morgan, Societe Generale, and many more domestic and foreign banks as well. (more…)
Will Cantwell-McCain Reinstate Glass-Steagall?
Posted by Larry Doyle on December 18th, 2009 11:18 AM |
Might we turn the clock back in an attempt to make our way forward? How so?
Pressure is certainly building in America to curtail, if not derail, the excessive risks embedded in our largest banks. How may these risks be unwound? Reinstating the Glass-Steagall Act, which separated commercial and investment banking activities. If this Act were to be reinstated, that would be the end of the mega-banks (Citi, JP Morgan, Bank of America, Wells Fargo) as we know them.
Who has been harping on this? Former Fed Chair Paul Volcker. Although Wall Street and Washington turn a deaf ear to Volcker, America listens to him intently.
In September, I wrote “Volcker Launches Bombshell on Wall Street and Washington” which highlighted Volcker’s call to reinstate Glass-Steagall. That story resonated far and wide. Now we learn from the American Banker that Senators Maria Cantwell (D-WA) and John McCain (R-AZ) have introduced legislation which would once again separate commercial and investment banking activities. (more…)
Goldman’s Hatzius v Morgan’s Kasman: “Let’s Get Ready to Rumble”
Posted by Larry Doyle on October 30th, 2009 11:20 AM |
I love a good debate. Much like a prize fight, a healthy debate can ebb and flow as those ‘in the ring’ bob and weave while trying to score points. I so enjoyed a debate highlighted by The Wall Street Journal between the chief economists from Goldman Sachs and JP Morgan that I highlighted it in the Newsworthy section of Sense on Cents. For those who don’t visit that section of my site, I am compelled to replay this debate here.
In the inimitable words of Michael Buffer, “let’s get ready to rumble” as Goldman, J.P. Morgan Economists Debate Shape of Recovery:
The recession might be over, but how goes the recovery?
We posed that question to two prominent Wall Street economists with two very different views of 2010. Bruce Kasman, chief economist at J.P. Morgan, sees the U.S. growing at about a 3.5% pace for most of next year. That appears optimistic compared to Jan Hatzius, chief economist at Goldman Sachs, who sees gross domestic product growth of 2% or so at the start of the year tapering off to just 1.5% by year-end.
The following is an edited transcript of their remarks during a recent conference call with The Wall Street Journal.
Looking ahead to 2010, what kind of recovery do you see? (more…)
Real-Time Information Is “Everything” on Wall Street
Posted by Larry Doyle on October 7th, 2009 3:45 PM |
One of the overriding reasons why I left First Boston in 1990 to join Bear Stearns was Bear’s advanced real-time risk management system. This system allowed me the ability to more proactively manage my trading risk. In the process, I was able to take more risk in the pursuit of greater profit. I became familiar with Bear’s system during the recruiting and interviewing process and was flabbergasted to realize how far behind First Boston was in its capabilities.
Real-time risk management and real-time data processing are critically important for thorough and proper oversight of any financial enterprise. A regulator will be lost in an attempt to maintain market oversight without the proper systems and access to real-time data.
Having heard and read of the systems deficiencies at both the SEC and FINRA, I am concerned at how far behind the curve these regulators are right now and how long it will take for them to recover.
While pondering this topic, I read in Securities Industry News that the SEC is looking to capture real-time data on derivatives transactions. This commentary, SEC Wants to Gather Real-Time Data on Swaps, addresses the exact topic I broached on July 17th in writing, “Can We ‘TRACE’ JP Morgan’s Business?” I wrote:
There is little to no transparency in the world of customized derivatives and as a result the bid-ask spreads are very wide. Cha-ching, cha-ching. Jamie (Dimon) and his friends on Wall Street are working extremely hard to keep it this way.
In their defense, it is likely not functionally feasible to move many customized derivatives to an exchange. 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. This system currently only covers transactions within the cash markets and not derivatives. What does that mean for investors? No transparency and price discovery for investors in the customized derivatives space. As such, Jamie and friends can keep those bid-ask spreads nice and wide and ring up huge profits in the process.
Securities Industry News writes:
The Securities and Exchange Commission told Congress today to grant regulators “direct access to real-time data” on credit default swaps (CDS) and other derivatives.
The request comes, the agency said, because the lack of such information hampered its efforts to investigate potential fraud and market manipulation in the over-the-counter (OTC) derivatives markets during last fall’s financial crisis.
The SEC’s enforcement actions in investigating market manipulation in OTC derivatives “were seriously complicated by the lack of a mechanism for promptly obtaining critical information – who traded, how much, and when – that is complete and accurate,” said Henry Hu, the director of the SEC’s new division of risk, strategy and financial innovation, in written testimony to the House Financial Services Committee.
Hu testified that “data on securities-related OTC derivative transactions were not readily available, and needed to be reconstructed manually.” He asked Congress to expand the SEC’s inspection authority over trade data repositories and clearinghouses for derivatives.
The comments represented a rebuke to industry efforts aimed thus far at making more information on CDS and other OTC derivatives data more readily available.
What do we learn here? Information is EVERYTHING!! Wall Street is fighting tooth and nail to protect its golden goose within the derivatives space by hoarding this information.
Why is the SEC even asking for the information? If anybody in Washington truly had a set of cojones, they would merely TELL Wall Street how it is going to work going forward . . . take the information, and fulfill their responsibility to protect the public interest.
LD
