JPM Derivatives Monster
- Thread starter DT-waw
- Start date
If you want to do a little bit of digging:
http://www.occ.treas.gov/ftp/deriv/dq102.pdf
Although this is last quarter info, it does state that exposure reduced from netting is 75%. This is not broken down for specific entities (so who knows if JPM gets the same benefit?).
But it does present a picture of the whole derivatives exposure in the banking industry and the trend is very reassuring. It has steadily risen from less than 50% in 1996.
Some other interesting factoids:
The credit exposure to risk based capital has been steadily growing for JPM/Morgan Grnty. Citi's has held quite even bobbing up and down but staying the same as 1996.
JPM Total assets $541,342 M Total derivatives $23,480,417 M
BAC $540,610 M $9,820,528 M
Citi $454,867 M $6,683,260 M
First Union $226,897 $2,304,420 M
I guess my point is to do your own homework. Although I respect Adam Hamilton as a researcher, no one is infallible.
http://www.occ.treas.gov/ftp/deriv/dq102.pdf
Although this is last quarter info, it does state that exposure reduced from netting is 75%. This is not broken down for specific entities (so who knows if JPM gets the same benefit?).
But it does present a picture of the whole derivatives exposure in the banking industry and the trend is very reassuring. It has steadily risen from less than 50% in 1996.
Some other interesting factoids:
The credit exposure to risk based capital has been steadily growing for JPM/Morgan Grnty. Citi's has held quite even bobbing up and down but staying the same as 1996.
JPM Total assets $541,342 M Total derivatives $23,480,417 M
BAC $540,610 M $9,820,528 M
Citi $454,867 M $6,683,260 M
First Union $226,897 $2,304,420 M
I guess my point is to do your own homework. Although I respect Adam Hamilton as a researcher, no one is infallible.
P2, it's huge. No doubt.
I know it's a popular pastime to slam Mr. Greenspan (as if everyone knows more than he does) but I'd really like to know whether he thinks that leverage is prudent or not.
Wonder what Bernard Baruch would think of it. I wonder how much of the money center banks Warren Buffett owns.
Before everybody buys their puts on JPM, I'm not so sure their exposure is directional in the markets. I can tell you that by Valentine's day of this year, they had cornered the cash market two-year German treasury note (the Schatz), which, of course, ended being an unbelievably great play.
Not only did the short-end of the yield curve explode upward at a faster rate than the longer-term issues, but they have squeezed two successive rolls in the futures with about 500,000 contracts open interest per roll, and the Euro appreciated by about 12% verus the dollar since JPM started accumulating the position.
Yes, I can tell you from personal experience that JPM, like Citigroup and every other IB, makes markets in OTC derivatives, but these are almost always hedged positions. Believe it or not, there is more money in making markets than there is in directional bets for IB's. Who do you think was taking the other side of LTCM's positions? For example, as a bank trader, I sell to a hedge fund or other bank a 2-year plain vanilla swap on the OTC market. In turn, I sell repo and buy 2 year cash treasuries, or buy 2 or 5 year futures at the CBOT to hedge the position in other markets. Of course, in the normal course of the business of making markets it would appear that I have alot of derivatives exposure. But in actuality, my only exposure is counter-party risk for the OTC swap. An entire floor of traders in Manhattan, London, and Tokyo collecting the bid/ask spreads over the course of a year can add ALOT of revenue to an IB.
Not only did the short-end of the yield curve explode upward at a faster rate than the longer-term issues, but they have squeezed two successive rolls in the futures with about 500,000 contracts open interest per roll, and the Euro appreciated by about 12% verus the dollar since JPM started accumulating the position.
Yes, I can tell you from personal experience that JPM, like Citigroup and every other IB, makes markets in OTC derivatives, but these are almost always hedged positions. Believe it or not, there is more money in making markets than there is in directional bets for IB's. Who do you think was taking the other side of LTCM's positions? For example, as a bank trader, I sell to a hedge fund or other bank a 2-year plain vanilla swap on the OTC market. In turn, I sell repo and buy 2 year cash treasuries, or buy 2 or 5 year futures at the CBOT to hedge the position in other markets. Of course, in the normal course of the business of making markets it would appear that I have alot of derivatives exposure. But in actuality, my only exposure is counter-party risk for the OTC swap. An entire floor of traders in Manhattan, London, and Tokyo collecting the bid/ask spreads over the course of a year can add ALOT of revenue to an IB.
Bryan Roberts
Guest
so is JPM hedged??? i would guess they are....which side of interest rate derivatives are they on??? if they have been shorting gold my guess is that they would profit greatly from interest rates spiking. i admit this is way over my head and would appreciate feedback from anyone that has a handle on this. aren't they a significant part owner of the federal reserve????
Bryan...that thought crossed my mind followed soon by the thought that, if Prechter is right and deflation sets in, it may be a while before rates spike....it's been a while in Japan....a long while...
*****
Interesting link in the article for those of the intellectual bent...(it's probably a waste of time but it looks intriguing) :www.LeMetropoleCafe.com.
*****
Interesting link in the article for those of the intellectual bent...(it's probably a waste of time but it looks intriguing) :www.LeMetropoleCafe.com.
I'm just saying that I'm sure they've hedged most risk out. They just have been doing an awful job lately. In the last 18 mos. They've hit just about every financial iceberg out there. ENE, GX, WCOM, ARGENTINA, LATIN AMERICA in general, now ENE legal problems, Im sure there are others we haven't heard of. Maybe it's just rough luck, but more likely, these guys just don't comprehend risk when they're making loans.