- There's doesn't (yet) seem to be any direct allegation that the "London Whale" exceeded his trading authority (suggesting that his trading activity was known and approved of by more senior managers, however unwise it proved to be.) Instead, there's waffling on about how "complicated" it all was.
Success is a curse, it makes you think you can't lose. Both at the individual and organisational level. Iskill was supposed to be hedging JPMs positions in the S&P, but it looks like he was actually speculating. The whole thing smacks of hubris, particularly on the part of JPM, not just Iskill.
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But if that occurs, I suspect he'll get an outsized exit package, to secure his silence.
I think you are right, to prevent the inevitable but embarrasing questions of Hu Nyu Wat.
Success is a curse, it makes you think you can't lose. Both at the individual and organisational level. Iskill was supposed to be hedging JPMs positions in the S&P, but it looks like he was actually speculating. The whole thing smacks of hubris, particularly on the part of JPM, not just Iskill.
I think you are right, to prevent the inevitable but embarrasing questions of Hu Nyu Wat.
The WSJ had a long article on this. Some key points from their analysis:
1) The whale was acting on orders. His boss's boss (reports to CEO) is probably more in the firing line.
2) The unit Iksil is in has a twin mandate of a) Hedging JP Morgan's other risks b) getting returns above JP Morgan's cost of capital. This seems to me to be a bit of a red flag. The goals are contradictory.
3) The $2B loss comes on a total position size of $380B. Essentially it was not hedges that failed, but hedges of hedges of hedges. In other words, it was not, as I opined yesterday, "taking very risky positions in order to juice yields." The goal was right, the execution wrong.
4) There is a opinion out on the street that the thing that made the trades losers was their size. Others saw the trades going on and bid up the entry for JPM in the knowledge that they could also profit by bidding down JPM's exit when they inevitably had to unwind. In other words, JPM essentially got killed by bid/ask spread or lack of enough liquidity or whatever you want to call it.
5) The good news is that the things they were trying to hedge are probably doing very well, thank you. (Estimate $800M or more of unrealised gains).
This will no doubt cause interesting stuff to come out for a while.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
1) The whale was acting on orders. His boss's boss (reports to CEO) is probably more in the firing line.
Yes, that rogue trader worked for a rogue bank.
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2) The unit Iksil is in has a twin mandate of a) Hedging JP Morgan's other risks b) getting returns above JP Morgan's cost of capital. This seems to me to be a bit of a red flag. The goals are contradictory.
Yes, they are contradictory. Hedging is a risk management technique, chasing yield usually involves risk. Market operations are so blurred now though it's hard to tell the difference anymore.
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3) The $2B loss comes on a total position size of $380B. Essentially it was not hedges that failed, but hedges of hedges of hedges.
He was moving the market, and hedge funds thought there was arbitrage to be had as the IG9 was rich to it's underlying. They began to short, but were frustrated in their efforts. It is believed that Iskill panicked and began doubling down on his position. But read the ZH article, it explains it better than I can.
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5) The good news is that the things they were trying to hedge are probably doing very well, thank you. (Estimate $800M or more of unrealised gains).
The bad news is that if JPMs credit rating gets knocked down 2 notches, they may need to post an additional 3B in collateral against existing positions.
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This will no doubt cause interesting stuff to come out for a while.
The bad news is that if JPMs credit rating gets knocked down 2 notches, they may need to post an additional 3B in collateral against existing positions.
Already knocked down 1 notch (AA- to A+) by one agency (Moodies?) and under review by another (S&P?)
And there is an SEC investigation.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
Three high-ranking officers at the center of J.P. Morgan Chase JPM -9.28% & Co.'s giant trading blunder are expected to leave the firm this week, said people familiar with the situation, and losses on the trade have grown.
Expected to leave as soon as Monday are Ina Drew, who has run the risk-management group tied to the losses since 2005; Achilles Macris, who was in charge of the London-based operation that placed the questionable trades; and trader Javier Martin-Artajo.
As of last Thursday the bank had lost $2.3 billion on a credit derivatives trade gone awry, but that figure grew by about $150 million on Friday, according to a person familiar with the matter. Executives are prepared for another $1 billion of possible losses this quarter from these positions, as well as another $1 billion of potential losses over the next year or so, according to someone close to the matter. That would mean a possible total loss of more than $4 billion, though the positions also could rebound in value, slicing any loss, the person noted.
Ms. Drew, Mr. Macris and Mr. Martin-Artajo are exiting because of their direct involvement in the mistakes that led to the losses. Ms. Drew set the trading strategies for the unit, and Mr. Macris and Mr. Martin-Artajo were responsible for carrying out her instructions and overseeing the problematic portfolio.
Ms. Drew initially was dismissive of concerns about the trading positions, said people familiar with the matter. But once the size of the losses became apparent to many in the company, she offered her resignation. That resignation is expected to be accepted by Chief Executive Officer James Dimon as early as Monday.
Another departing executive is likely to be trader Bruno Michel Iksil, nicknamed the "London Whale" for the big positions he took in credit markets on behalf of the chief investment office. But it isn't yet clear when Mr. Iksil would leave, said people familiar with the situation. Mr. Iksil reported to Mr. Martin-Artajo and Mr. Macris, according to people familiar with the matter.
So it looks as if the Whale's boss and boss's boss and a colleague/team leader are gone, but the Whale might not be beached yet.
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