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?