JP Morgan prop desk - worst results in recent memory

"just goes to show that these ivy league guys aint all theyre cracked up to be."

Who is Ivy League..............most of them are those who can read chapters and take good exams i.e process good lot of information, then they get wall street jobs in which even if they do average, they are still rated as demi gods. These wall street jobs are not tough but getting into them is and slots are considered only for the Ivy Leagues.

Guess if you keep hammering some topic day and night and then come up with some theory..............does that make you intellectual? Some times I wonder if wall street researchers are actually intellectual...........they are just hammering few topics day and night.........so they are smart yes and knowledgeable due to their environment but 'demi god like intellectuals' .....very vague topic.
 
i worked in this industry for 12 years.... they are not all ivy league or intellectual ivory-tower type, but the business is phenomenally complex very few people in the world have the disposition or the acumen to thrive in it
 
Quote from johnself11:

i worked in this industry for 12 years.... they are not all ivy league or intellectual ivory-tower type, but the business is phenomenally complex very few people in the world have the disposition or the acumen to thrive in it
More...

Johnself:

I've always wondered how the big institutions could have a bad trading quarter with 842 million in profits, and we, supposedly, can trade all the same instruments and struggle to make a profit. You sound like you know what's taking place in this part of the industry. Would you mind answering 4 questions?

1)What exactly is the repeatable edge at some of these big institutions that allows these enormous trading profits?

2)Is it possible for a dedicated, well-capitalized individual to, in any way, capture a quarter of one percent of these profits?

3)Even if it's impossible for an individual to participate in the profits, why don't competing institutions go in to these high profit areas and compete for the profits in such a way that the edge disappears (similar to the average hedge fund, which is now actually a loser on the year)?

4)When the counterparties see that a financial institution made 842 million off them in one "bad" quarter, why don't they agitate for better fills, or attempt to get competitors involved to compete for the business? How do the counterparties react when they see these enormous numbers?

Thanks.
 
well its a very good question, and the margins of profit are shriking exponentiallyu for the very reason you state. however you have to remember that this market making biz goes on at large money center banks which service the same clients in investment banking, loans, etc. In many cases the spread earned by the market making desks is captive business, as the customer wants to ensure future "lending friendliness" by the bank. it is essentially tying, but not explicitly stated
 
This is plain silly. Heres a group of traders, who have basically unlimited resources, money-wise, brain-wise and every gadget known to mankind made available to them. Yet they lose money.

Imagine the informational flow in a bank like Chase which has huge loan volumes - you can aggregate which industry is borowing, paying late or even have great profits. There is no reason for them not to make a fortune every quarter - unless they have unmotivated people, poor risk control or they simply know they get paid every 2 weeks if they make money or not.

These groups make money when they throw HUGE volume at the market and the market follows. Or a customer gives them an order to execute.

Its simply poor management, risk control and data flow that allows these folks to lose money and keep their jobs. I'd like to see how much a group of big locals would make if they were given the resources a major bank has available.
 
well what you assert is easier said than done.... first of all having massive flow information loses its value quickly when you by definition have to warehouse the other side.... in order to know about the volume of flows you definitionally have to take it down, so you may know very well WHY the market i going down - but it's cause you are long! of course i exaggerate, but the amount of interest rate risk tha t financial institutions are dumping on dealer is ludicrous.... fannie mae, for example, is 10 times bigger than the us bond market's liquiditiy... when they call up to move 5 billion 10y note equivalents of duration, it is very difficult to successfully take this down and manage it.
 
I work at a financial institution. When I was on the derivatives desk as a summer student I also asked along the lines of your question 4. I didn't understand the answer at the time but now I do.

The reason is that banks have to put up capital against every trade. Shareholders expect them to target a return on capital (actually, RAROC. "Risk Adjusted Return on Capital). If all a bank's deals are priced to only make 5% RAROC, then the institution's return on equity will suffer and the CEO will get fired.

Thus, you target say a 15-20% RAROC. Not all deals make this but you price for it on average. All the competing dealers also need to make this target. So even if the client really grinds, there is a point below which no dealer will go - they just can't justify it.

A similar question can be asked about investment banking fees. Why are they so sticky at 5% or whatever? The problem is that the institutions the client wants to deal with (expecting that "you get what you pay for" - sometimes but not always true) don't try to be discounters. It is sort of an unspoken agreement but not really collusion.


Quote from wilburbear:

Johnself:

I've always wondered how the big institutions could have a bad trading quarter with 842 million in profits, and we, supposedly, can trade all the same instruments and struggle to make a profit. You sound like you know what's taking place in this part of the industry. Would you mind answering 4 questions?

1)What exactly is the repeatable edge at some of these big institutions that allows these enormous trading profits?

2)Is it possible for a dedicated, well-capitalized individual to, in any way, capture a quarter of one percent of these profits?

3)Even if it's impossible for an individual to participate in the profits, why don't competing institutions go in to these high profit areas and compete for the profits in such a way that the edge disappears (similar to the average hedge fund, which is now actually a loser on the year)?

4)When the counterparties see that a financial institution made 842 million off them in one "bad" quarter, why don't they agitate for better fills, or attempt to get competitors involved to compete for the business? How do the counterparties react when they see these enormous numbers?

Thanks.
More...
 
As an extension to my previous posts, think of JPM (or other dealer) like this.

Perhaps the capital allocated to the trading ops is $10 billion (I don't know what it actually is, might be in their financials).

They make $850 million, which is ROC of 8.5% This is on the low side - therefore, a "bad quarter / year".

If they made instead $1.2 billion, this is 12% which is much better.
 
Quote from MichaelJ:

I work at a financial institution. When I was on the derivatives desk as a summer student I also asked along the lines of your question 4. I didn't understand the answer at the time but now I do.

The reason is that banks have to put up capital against every trade. Shareholders expect them to target a return on capital (actually, RAROC. "Risk Adjusted Return on Capital). If all a bank's deals are priced to only make 5% RAROC, then the institution's return on equity will suffer and the CEO will get fired.

Thus, you target say a 15-20% RAROC. Not all deals make this but you price for it on average. All the competing dealers also need to make this target. So even if the client really grinds, there is a point below which no dealer will go - they just can't justify it.

A similar question can be asked about investment banking fees. Why are they so sticky at 5% or whatever? The problem is that the institutions the client wants to deal with (expecting that "you get what you pay for" - sometimes but not always true) don't try to be discounters. It is sort of an unspoken agreement but not really collusion.
More...

MichaelJ:

What's the repeatable edge at the financial institution you work at?
 
Quote from MichaelJ:

As an extension to my previous posts, think of JPM (or other dealer) like this.

Perhaps the capital allocated to the trading ops is $10 billion (I don't know what it actually is, might be in their financials).

They make $850 million, which is ROC of 8.5% This is on the low side - therefore, a "bad quarter / year".

If they made instead $1.2 billion, this is 12% which is much better.
More...

http://moneycentral.msn.com/investor/invsub/results/compare.asp?Page=InvestmentReturns&Symbol=jpm
 
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