Libor rate-fixing scandal spotlight now on Citi, JPMorgan [TheRawStory]

NEW YORK — The harsh light of the Libor rate-fixing scandal has crossed the Atlantic, with both Citigroup and JPMorgan Chase saying regulators and investigators have requested information from them in a so-far preliminary probe of the case.

Share prices for both — as well as Bank of America, which has not said if it was asked for information — have fallen sharply this week amid worries they could be in line for the type of heavy fines laid on Britain’s Barclays Bank, at the center of the scandal.

Barclays has been fined $452 million (360 million euros) by British and US regulators for attempted manipulation of the markets for Libor and Eurobor benchmark interest rates between 2005 and 2009.

Three top Barclays executives have resigned and on Friday Britain’s Serious Fraud Office said it would formally investigate the case, which has dented London’s reputation as a top financial center.

But speculation runs to other banks because the Libor rate is set based on information from 16 international banks, and many think that manipulating it would take more than one bank.

The issue affects not just banks but commercial and retail borrowers around the world — in the United States, the payments of a floating rate home mortgage loan are often tied to the Libor base rate.

Read more

Keiser Report [E309] – JP Morgan’s $9 Billion Problem

JPMorgan, Goldman Shut Europe Money Funds After ECB Cut [Bloomberg]

JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. and BlackRock Inc. (BLK) closed European money market funds to new investments after the European Central Bank lowered deposit rates to zero.

JPMorgan, the world’s biggest provider of money-market funds, won’t accept new cash in five euro-denominated money- market and liquidity funds because the rate cut may result in losses for investors, the company said in a notice to shareholders. Goldman Sachs won’t accept new money in its GS Euro Government Liquid Reserves Fund, and BlackRock, the world’s largest asset manager, is restricting deposits in two European funds.

“The European market environment is in unchartered territory with such historically low — or even negative — yields for high-quality issuance,” Goldman Sachs (GS) said in a memo to fund shareholders, citing the ECB’s rate cut. “It is not currently feasible for our portfolio managers to deploy capital without substantially diluting the yield for the existing base of shareholders.”

The ECB yesterday reduced its benchmark rate to a record low of 0.75 percent and took its deposit rate to zero. Money funds have been struggling to invest client assets at a profit asinterest rates globally are near record lows and Europe’s sovereign debt crisis has reduced the supply of available debt. Managers have been forced to cut fees to keep customer returns above zero, and some have abandoned the business.

All three firms said the restrictions are temporary and they will monitor market conditions. Investor redemptions from the funds are not being limited.

Read more

Judge Orders JPMorgan to Explain Withholding Emails $JPM [CNBC]

A U.S. judge has ordered JPMorgan Chase to explain why the court should not force the bank to turn over 25 internal emails demanded as part of an investigation into whether it manipulated electricity markets in California and the Midwest.

The Federal Energy Regulatory Commission (FERC) filed a petition in federal court in Washington on Monday asking the court to order the bank to show cause as to why it would not comply with a subpoena issued by the commission as part of its investigation into the bank’s power trading.

On Thursday, U.S. District Judge Colleen Kollar-Kotelly gave the bank until July 13 to submit an explanation as to why the court should not enforce FERC’s subpoenas. JPMorgan has asserted the emails are protected by the attorney-client privilege.

Read more

JPMorgan Complicit In Vatican Bank Money-Laundering: Jamie Dimon Seeks Time Alone With Pope To “Confess”

Embroiled in another financial scandal pertaining to the laundering of money, the Vatican bank has been called by Forbe’s “the most secret bank in the world” and faces international scrutiny in its highly secretive banking model.  Although details are limited to the public, it is clear that the Vatican bank is facing pressure from Italian and European officials over its innerworkings.  In short, the bank has laundered billions of dollars. It has had help of course, in the deeply interwoven network of high finance, and none other than US bank JPMorgan abetted highly suspicious transactions, although the bank has yet to be accused of laundering itself. Though, this is a no-brainer considering the accounts the bank hosted for the Vatican.

This part of the story begins when Gottii Tedeschi, now former head of Vatican bank, was relieved when four men waiting for him in the street while he was on his way to work were not hit men. They were investigators with the Carabinieri, Italy’s national military police force. Before he had reached his car, they had served him a search warrant. They escorted him back to his house, where they for many hours searched through his home office. Simultaneously, the military police force was searching through Gotti Tedeschi’s office in Milan. They confiscated two computers, two cabinets’ full of binders, a planner and his briefcase. The documents confiscated from Gotti Tadeschi, who was once a confidant of the pope, “provided Italian law-enforcement officials insight into the innermost workings of the Vatican bank.” According to Germany’s Der Spiegel:

The secret dossier includes references to anonymous numbered accounts and questionable transactions as well as written and electronic communications reportedly showing how Church banking officials circumvented European regulations aimed at combating money-laundering.

Tedeschi came under pressure from high-level Vatican officials for his running of the Vatican bank. He was pushing a model more transparent than the Vatican establishment could allow. In short, he upset powerful forces within the Roman Curia, the Vatican’s administrative and judicial apparatus. Where fore?

The bank, officially called the Institute for Works of Religion (IOR), has functioned for centuries as a trust company “for clandestine monetary transactions.” The bank is not only used by the Church, but also the mafia, corrupt politicians and transnational corporations. One of Tedeschi’s seized memos purportedly reads: “I’ve seen things in the Vatican that scare me.”

Read more

JPMorgan Trading Loss May Reach $9 Billion [NYT]

Losses on JPMorgan Chase’s bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation.

When Jamie Dimon, the bank’s chief executive, announced in May that the bank had lost $2 billion in a bet on credit derivatives, he estimated that losses could double within the next few quarters. But the red ink has been mounting in recent weeks, as the bank has been unwinding its positions, according to interviews with current and former traders and executives at the bank who asked not to be named because of investigations into the bank.

The bank’s exit from its money-losing trade is happening faster than many expected. JPMorgan previously said it hoped to clear its position by early next year; now it is already out of more than half of the trade and may be completely free this year.

As JPMorgan has moved rapidly to unwind the position — its most volatile assets in particular — internal models at the bank have recently projected losses of as much as $9 billion. In April, the bank generated an internal report that showed that the losses, assuming worst-case conditions, could reach $8 billion to $9 billion, according to a person who reviewed the report.

With much of the most volatile slice of the position sold, however, regulators are unsure how deep the reported losses will eventually be. Some expect that the red ink will not exceed $6 billion to $7 billion.

Read more

JP Morgan Managers Being Told Trade Loss is $9 Billion [Teri Buhl]

Banking competitors are trying to lure away top talent at JP Morgan by highlighting the recent prop trading losses are likely to affect bonues and Jamie Dimon isn’t being honest about how bad the loss will be. On July 13th the banking giant will announce 2nd quarter earnings and a real-time number is expected on how many billions net income gets wacked with because the London whale trade has been wound down. Last week Mark DeCambre at the New York Post wrote his JPM sources expect the loss to be between $4-6 billion – JPM’s estimate in May was only $2bn. But I heard this week JPM managing directors are being told it’s more. To the tune of $9 billion – Ouch!

Read more

Jamie Diamond Is Not Alone

Dimon To Ackerman: “We Don’t Gamble. Gamblers Lose” [Zerohedge]

In a somewhat inspired line of questioning by Rep. Gary Ackerman on the differences between ‘investing’ and ‘gambling’, the JPMorgan CEO diligently notes that “on average Gamblers lose” implicitly stating, we assume, that ‘investors on average win’. Ackerman interestingly takes up the common myth that banks (and Wall Street in general) were ‘on the level’ and ‘facilitated investing’ but to him the ‘hedges’ that JPM (among others) are placing are nothing but gambling as he correctly notes the dismal truth that banks are not in fact there for the common good in “helping jobs and being good for America”. Betting against your initial bet suggests a lack of ‘knowing what you are doing’ is how Ackerman frames his concerns, and furthermore (as we pointed out), hedging against your hedge just makes the whole thing farcical as if “throwing darts at a dartboard” and in the process does not help the economy or create one job. The main thrust being that: if JPM is right a majority of the time it helps the company, but if they are wrong it puts systemically everything at risk – the public investing confidence in the system (an unhedgeable risk).

Read more

Ahead Of Tomorrow’s Dimon Hearing, Presenting JP Morgan’s 93.5% Historical Winning Trade Perfection [Zerohedge]

From http://www.zerohedge.com

We are just about 16 hours away from Jamie Dimon’s sworn testimony before the Senate Banking Committee, which even has the theatrical name: “A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase?” Will anyone learn anything? Of course not: Jamie Dimon has been well-schooled in not disclosing critical trading information, and will certainly use the “proprietary position” and “more shareholder losses” excuse for any directed question asking how big the JPM CIO loss has become. Because while the hearing could have been productive, if indeed its purpose was to seek to prevent future massive losses of scale such as the suffered by the JPM prop trading unit and its hundreds of billions in CDS notional position, the last thing anyone will care about tomorrow is market efficiency and actual regulation. First and foremost: grandstanding and posturing, in the case of the politicians, and not disclosing anything, without saying too many “I don’t recall”s in the case of Dimon. Which is why we have little hope to get anything out of tomorrow’s formulaic 2 hours of largely meaningless droning. That said, considering we have already covered the topic of the JPM loss from a mechanistic standpoint more than any other media outlet, there is one more chart we would like to share with readers.

The reason for this chart was predicated by a small note in the latest WSJ article on who knew what and when (which came out at just the same time as the Bloomberg piece – as if the JPM CIO leaks can’t decide who to dump information to so does it to both BBG and the WSJ), in which it is said that in “2010, another bad trade caught the attention of a senior finance executive who notified top J.P. Morgan executives. Joseph Bonocore, then chief financial officer of the CIO, became concerned when London-based traders lost about $300 million in a few days on a foreign exchange-options trade, without any offsetting gains to balance out the losses.“

We decided to go back to the firm’s 2010 filings and see what it had disclosed about its losses based on trading days reporting.

Here is what JPM reported publicly:

• Q1 2010: zero days with any trading losses; 64 profitable trading days
• Q2 2010: 8 trading loss days; 57 profitable days; of which the worst were 2 losses between $100-$120 MM
• Q3 2010: zero days with any trading losses; 66 profitable trading days
• Q4 2010: 5 trading loss days; 61 profitable days; of which worst was 1 loss day between $80-$100MM

Most importantly, in JPM’s own words: “During 2010, losses were sustained on 13 days, none of which exceeded the VaR measure.” Recall that this is the fudged VaR, which upon the discovery of the Iksil trade, had to be massively adjusted upward having been found to be completely meaningless and to exclude all CIO positions.

We wonder: was the CIO responsible for all of these losses, and more importantly, is the abovementioned loss captured in any of the JPM public reports? And if not, why not? More importantly, can someone explain how it is possible that a firm that over the past 9 quarters has disclosed a total of 41 days on which it has lost money trading, and 546 days on which it was profitable,or a 93.5% win rate of the total 587 days in the past 2 years and 1 quarter.

All this is shown in the chart below:

To borrow a phrase from Taleb: was JPM’s now mega-loss merely the non-scalable outlier event that occurs when a firm has an artificially impossible winning ratio, and uses complexity to mask the fact that it is in fact merely accumluating losses which have to be booked eventually?

Read more

Jamie Dimon May Come Out Swinging Tomorrow, But His Fast Ball Isn’t What It Was [Angrybear]

JPMorgan Faces $4.2 Billion Trading Loss, ISI Forecasts

JPMorgan Chase & Co. (JPM), the largest U.S. bank, may report a $4.2 billion second-quarter trading loss in its chief investment office, according to an estimate by International Strategy & Investment Group Inc.

The pretax loss would help cut second-quarter earnings to 65 cents a share, a 30 percent decline from an earlier estimate of 93 cents, Ed Najarian, an ISI analyst, said in a note yesterday. Weaker-than-expected trading and investment banking revenue coupled with mark-to-market private-equity losses will also weigh on results, Najarian said.

JPMorgan Chief Executive Officer Jamie Dimon, 56, said last month the firm lost about $2 billion on trades conducted at its CIO unit, which is charged with managing the bank’s idle cash to earn a profit while minimizing risk. Dimon has said losses could grow and it might take the rest of the year to liquidate the New York-based lender’s trades.

Read more

JPMorgan’s Other Messy Problem: MF Global’s Missing Money [Forbes]

As the nation’s largest bank by assets JPMorgan Chase is bound to have its share of legal troubles but recently it’s been party to some of the ugliest accusations.

The most recent of JPM’s legal troubles are related to its massive trading loss of more than $2  billion. The loss has resulted in a number of lawsuits filed by employees and shareholders; even a probe by the FBI.

Today though a more complex legal issue resurfaced for JPMorgan. The trustee for the failed brokerage firm MF Global released a 285-page report about that firm’s bankruptcy, and it isn’t pretty. James Giddens says the former CEO, Jon Corzine, along with his executives may face legal claims for breach of fiduciary duty when they used customer money to fund a growing liquidity crisis.

To date, there is roughly $1.6 billion in missing client money at MF Global.

What does any of that have to do with JPMorgan Chase? It served as MF Global’s clearing bank. In fact, it was the agent for approximately $5.7 billion in securities lending transactions for MF Global, and in the final days of MF Global it was the recipient of some client money, according to the trustee’s report.

JPMorgan has not replied to a request for comment about today’s report.

Read more

Jamie Dimon And The Fall Of Nations [baselinescenario.com]

From baselinescenario.com

“Why Nations Fail: The Origins of Power, Prosperity, and Poverty,” by Daron Acemoglu and James Robinson, is a brilliant and sometimes breathtaking survey of country-level governance over history and around the world. Professors Acemoglu and Robinson discern a simple pattern – when elites are held in check, typically by effective legal mechanisms, everyone else in society does much better and sustained economic growth becomes possible. But powerful people – kings, barons, industrialists, bankers – work long and hard to relax the constraints on their actions. And when they succeed, the effects are not just redistribution toward themselves but also an undermining of economic growth and often a tearing at the fabric of society. (I’ve worked with the authors on related issues, but I was not involved in writing the book.)

The historical evidence is overwhelming. Many societies have done well for a while – until powerful people get out of hand. This is an easy pattern to see at a distance and in other cultures. It is typically much harder to recognize when your own society now has an elite less subject to effective constraints and more able to exert power in an abusive fashion. And given the long history of strong institutions in the United States, it appears particularly difficult for some people to acknowledge that we have serious governance issues that need to be addressed.

The governance issue of the season is Jamie Dimon’s seat on the board of the Federal Reserve Bank of New York. Mr. Dimon is the chief executive of JPMorgan Chase, currently the largest bank in the United States. This bank is “too big to fail” – meaning that if it were to get into difficulties, substantial financial support would be provided by the Federal Reserve System (and perhaps other parts of government) to prevent it from collapsing.

Read more

Margin Call? JP Morgan Sells $25 Billion in Securities to Offset Derivatives Losses [silverdoctors.com]

In what CNBC calls ‘a stupid decision‘, JP Morgan has reportedly sold $25 billion in profitable bonds and securities to offset trading losses from its IG9 derivatives crisis.

If it was merely an effort to prop up earnings for JPM’s Q2 report we would agree, but this is more likely JP Morgan LIQUIDATING CAPITAL TO MEET MASSIVE MARGIN CALLS OVER ITS ESCALATING INTEREST RATE SWAP LOSSES, which we have discussed are reportedly close to $100 Billion.   Bankers are not fools, throwing good money after bad.  If JPM sold $25 billion in profitable positions, it is because IT WAS FORCED TO.

JPMorgan Chase has sold an estimated $25 billion of profitable securities in an effort to prop up earnings after suffering trading losses tied to the bank’s now-infamous “London Whale,” compounding the cost of those trades.

Chief Executive Jamie Dimon earlier this month said the bank sold corporate bonds and other securities, pocketing $1 billion in gains that will help offset more than $2 billion in losses.

As a result, the bank will not have to report as big an earnings hit for the second quarter.

The sales of profitable securities from elsewhere in the bank’s investment portfolio will increase its costs by triggering taxes on the gains and by eliminating future earnings from the securities.

Read more