Unstructured Finance

Pay close attention to the timings in JPMorgan’s internal report

By late January last year, not even the London Whale himself thought the massive derivatives bets that eventually cost the bank $6.2 billion were such a good idea.

The Wall Street Journal reported today that Bruno Iksil, the credit trader nicknamed ‘the London Whale’ for the outsized positions he took in the small market for the CDX Index, warned his bosses a year ago that the size of his desk’s positions had gotten “scary.”

JPMorgan admitted as much in the internal report it released to the public on Jan. 16, but kept Iksil’s name out of emails quoted in the report, supposedly to protect UK privacy laws. The Journal got confirmation that Iksil was indeed the author of the emails, and that he made a presentation expressing his worries to the bank’s chief investment officer, Ina Drew, on Feb. 3, 2012.

According to JPMorgan’s report, Drew “appeared not to be overly concerned” when Iksil told her that the portfolio with the CDX positions could lose up to $100 million.

Could that be the key to why JPMorgan had to restate its first quarter earnings report after admitting in July that the losses the chief investment office incurred on the CDX trades were bigger than it expected? If Drew had listened to Iksil, she would perhaps have been able to warn her bosses before then-CFO Doug Braunstein signed off on the first-quarter earnings report released in April.


Some important tax and accounting events in the week ahead:

Tuesday, Feb. 5

* National taxpayer advocate Nina Olson joins a panel on 100 years of the federal income tax. Noon – 1:30 p.m. ET, the Urban Institute. Washington.

* D.C. Bar taxation section lunch program on the taxation of financial products. Noon – 1:30 p.m. ET, D.C. Bar Conference Center. Washington.

 Wednesday, Feb. 6

* American Bar Association section of taxation webinar on intragroup spinoffs, liquidations and reorganizations. 1 – 2:30 p.m. ET.

Essential reading: U.S. is preparing more tax-evasion cases, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

 * U.S. is preparing more tax-evasion cases. Laura Saunders – The Wall Street Journal. The U.S. is expanding its crackdown of offshore tax evasion, preparing numerous criminal cases against suspected offenders, defense lawyers involved in the cases say. Link  

* Federal rule limits aid to families who can’t afford employers’ health coverage. Robert Pear – The New York Times. In deciding whether an employer’s health plan is affordable, the Internal Revenue Service said it would look at the cost of coverage only for an individual employee, not for a family. Family coverage might be prohibitively expensive, but federal subsidies would not be available to help buy insurance for children in the family. Link  

* Workers’ children won’t get subsidies. Louise Radnofsky – The Wall Street Journal. Federal tax subsidies under the 2010 health law designed to help lower-income Americans afford insurance won’t extend to dependents who can be covered through a family member’s employer. Link  

Essential reading: India sees end to Vodafone tax dispute, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* India sees end to Vodafone tax dispute. James Blitz and Lionel Barber – The Financial Times. India’s finance minister is confident that a $2.6 billion tax dispute with Vodafone is close to being settled as the Indian government attempts to win back international investor confidence. Link  

* Amazon’s growing problem. Justin Lahart – The Wall Street Journal. The holiday season really was a taxing time for Amazon.com. Texas in July and California and Pennsylvania in September started collecting online sales taxes. Together, the three states account for a quarter of the U.S. population, so a fair-sized chunk of American shoppers had one less reason to buy online. Link 

* Corning CFO cheers tax extensions. Vipal Monga – The Wall Street Journal. Corning Inc. will get a slight earnings boost starting in the first quarter of this year thanks to provisions in the fiscal cliff deal reached earlier this month, according to the glass and ceramics maker’s chief financial officer. The company’s projected 2013 tax rate will be lower than earlier projections. Link  

Essential reading: Mickelson and the sports star migration, and more

Golfer Phil Mickelson of the U.S. REUTERS/Hans Deryk

Welcome to the top tax and accounting headlines from Reuters and other sources.

Mickelson and the sports star migration. Allysia Finley – The Wall Street Journal opinion. America’s top-grossing golfer Phil Mickelson drove himself into a bunker on Jan. 20 when he said that federal and California state tax hikes had made him contemplate making “drastic changes” in his life —including, it was widely assumed, moving to a no-income-tax state such as Texas or Florida. But he was only stating publicly what many professional athletes are mulling privately. Link

Bank of America shifts derivatives to UK. Patrick Jenkins – The Financial Times. The move, part of the group’s global drive to rationalize its operations, has been encouraged by regulators but will also allow BofA to benefit from tax breaks stemming from the accumulated losses in its UK business. Link

Japan embraces modest business, investment tax breaks. Misuru Obe – The Wall Street Journal. As part of its evolving economic stimulus plan, the new Japanese government is adding a package of modest corporate and investment tax breaks to a big boost in government spending and a fresh dose of monetary easing from the Bank of Japan. Link  

Hedge fund scorecard 2012: Mortgage masters win, Paulson on bottom again

Mortgage funds roared home with returns of almost 19 percent last year, trouncing all other hedge fund strategies and beating the S&P 500 stock index, which rose 13 percent.

BTG Pactual’s $245.5 million Distressed Mortgage Fund, which invests primarily in distressed non-agency Residential Mortgage-Backed Securities (RMBS), returned about 46 percent for the year, putting it at the top of HSBC Private Bank’s list of the Top 20 performing hedge funds and making it one of 2012′s best performing funds.  Bear in mind the the average hedge fund gained only 6 percent last year.

HSBC’s hedge fund platform features hundreds of funds, including many of the industry’s biggest and best known managers, and the bank releases regular performance updates throughout the year.


Some important events in the week ahead:

Monday, Jan. 28 – Wednesday, Jan. 30

University of Southern California Gould School of Law Tax Institute on business tax planning, estate tax planning and other topics. Los Angeles.

Tuesday, Jan. 29 – Friday, Feb. 1

Council on State Taxation’s annual state and local tax “basics school”. Atlanta.

Wednesday, Jan. 30

Joint Webcast meeting of the Financial Accounting Standards Board and the International Accounting Standards Board covers revenue recognition, insurance contracts and lease accounting. Norwalk, Connecticut, and London.

Essential reading: Republican governors open new front in tax debate, and more

Governor Sam Brownback has cut taxes in Kansas. REUTERS/Mike Segar.

Welcome to the top tax and accounting headlines from Reuters and other sources.

 * Republican governors open new front in tax debate. Richard Stevenson – The New York Times. Overhauling the tax system is the subject of endless talk and little action in Washington. But Republican governors in a range of states are setting up limited but politically ambitious and potentially telling experiments in what might be possible nationwide. Link

* Towns’ next hit from hurricane is to tax revenue. Alison Leigh Cowan – The New York Times. Localities across the New York region, already reeling from the cost of cleaning up from Hurricane Sandy, are confronting the prospect of an even bigger blow to their finances: a precipitous decline in property tax revenues.  

* US taxes: Certain as death, complicated as hell. James Politi – The Financial Times. The US tax code is under scrutiny as an international outlier that is unable to raise sufficient revenue at a time of big budgetary pressures – and is stifling America’s economic potential and competitiveness at a time when the country is desperately seeking to shift towards a faster recovery. Link  

Essential reading: Firms keep stockpiles of ‘foreign’ cash in U.S., and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Firms keep stockpiles of ‘foreign’ cash in U.S. Kate Linebaugh – The Wall Street Journal. For people on both sides of the contentious debate over corporate-tax reform, the situation highlights what they see as the absurdity of rules that encourage companies to engage in semantic games, legal gymnastics and inefficient corporate-financing methods to shield profits from U.S. taxes. Link

* Microsoft may avoid repatriation on any Dell investment. Vipal Monga – The Wall Street Journal. Microsoft Corp. may be able to deploy foreign cash to help finance a buyout of U.S. computer maker Dell Inc. without triggering repatriation taxes. Microsoft could exploit an exception in the tax code so long as its investment in Dell doesn’t surpass 25 percent. Link

* Now, Democrats push tax-code rewrite. John McKinnon – The Wall Street Journal. Suddenly it’s Democrats who are talking up a tax-code rewrite, long a favorite cause for Republicans. But reaching agreement in the short run still looks like a long shot. “We must … revamp our tax code,” President Barack Obama said in his inaugural address on Monday. Link 

Essential reading: Private equity tax breaks in jeopardy, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

 * Private equity seeks a new path. Jane Sasseen – The New York Times. As Washington grapples with the country’s fiscal woes, the private equity industry is grudgingly facing a new reality: its long-held tax advantages are likely to disappear. Link  

* Phil Mickelson says “drastic changes” coming over taxes, hints at retirement. Cindy Boren – The Washington Post. Professional golfer Phil Mickelson said “drastic changes” are ahead for him because of increases in the federal and California tax rates. Mickelson has more than $67 million in career earnings and was the seventh highest-paid athlete on Forbes’s 2012 list with $47.8 million in earnings (including $43 million in endorsements). Link  

* New term, new challenges for the president. John McKinnon – The Wall Street Journal. A look at some of the issues that will be prominent in President Barack Obama’s second term: Tax reform. House and Senate committee leaders say they will try to pass far-reaching legislation to overhaul the tax code this year, but prospects appear to be dimming amid continuing partisan budget battles and limited attention from the Obama administration so far. Link