Not being in derivatives trading myself, I am not directly linked in with information about exactly WHAT the extent of JPM’s exposure in the London whale episode is, although Tyler durden at Zero hedge http://www.zerohedge.com/news/jpm-staring-another-3-billion-loss has a decent take on the issue followed up by another post today http://www.zerohedge.com/news/has-jpmorgan-already-unwound-its-losing-trade Speculating somewhat responsibly that JPM may have got out of its festering CDX ser 9 condition.
From where I sit , this seems to be the equivalent of a buy write (buying , say a call, and writing a call) When things are going your way, it can look rather grand on your balance sheet, but you must cover alertly when things are not, especially when it comes to a question of cash flows from margin calls. (Cash Settlements is the unhad scam in the derivatives market IMO).
But this is besides the point because a $2 billion trading loss (even a Dollar FIVE billion trading loss) in an outfit that has paid out 6.4 billion dollars in bonuses in the past, is nothing. ( NOTHING, superman! :D).
I think the point is about how active the risk management(and therefore a CEO’s job) has to be in a bailed out bank in an election year. JPM is not only too big to fail, it’s also the whale , as compared to the giant squid. With Morgan stanley suffering seasonal allergies, JPM is the biggest game in london town.
As we have seen over the weekend, a ratings downgrade can push the bank to a humongously large margin call given the size of JPM’s portfolio.
Which is why Dimon’s mea culpa (http://www.csmonitor.com/USA/Latest-News-Wires/2012/0513/JPMorgan-CEO-Jamie-Dimon-I-was-dead-wrong-about-trading-concerns ) and subsequent weekend actions to stem the setting rot in the market deserve creditable mention. In an increasingly political investment banking world, the LAST thing the economy can afford is for Bailed out (British and American) banks becoming another fredie/fannie.
This better not interfere with QE3, though because the greeks are at the gate. 😀
Disclaimer: Opinions expressed here are those of the Author and not necessarily of anyone associated with him in any capacity whatsoever.