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.

UF Weekend Reads

Fall really arrives in NYC this weekend. What better time then for Sam Forgione’s weekend reads. Have a whale of a time.

From The New York Times:

Susan Dominus long read about Ina Drew, the “natural” risk manager, who oversaw JP Morgan’s $6 billion trading loss.

From Vanity Fair:

More on Jamie Dimon and JPMorgan from the writing team of William D. Cohan and Bethany McLean

Jamie Dimon’s teflon coating

By Matthew Goldstein and Jennifer Ablan

Jamie Dimon’s coat of teflon is wearing well, even as the criminal and regulatory investigation into the London Whale trading scandal deepens.

Shares of JPMorgan Chase, which plunged more than 20 percent in the days after the bank revealed in May that the trading losses were much worse than previously believed, have rallied back. The stock is now trading around $38.66 a share. On May 10, when the bank disclosed after the bell that it had lost at least $2 billion on derivatives bets made by a group of London-based traders, the stock closed at around $40.

When Dimon was called before Congress to testify on the trading scandal in June, he was generally treated like the king of Wall Street by congressman and senators. At the time, bank’s internal probe had not yet found evidence that the three traders may have tried to hide their losses, so the fallout from the scandal appeared limited. The bank disclosed those finding to federal authorities before releasing its second-quarter earnings and restating its numbers for the first quarter.

Outrage isn’t asleep it’s just gone underground

By Matthew Goldstein and Jennifer Ablan

Where is the outrage? A year ago, the Occupy Wall Street movement was just getting started, with mass demonstrations across the nation against corporate malfeasance and greed.

But now it’s been crickets and we don’t mean the game. There’s been no marching on Wall Street nor on the steps of Capitol Hill since the latest revelations of bad behavior in the financial sector. The populist uproar has been rather sedate in the face of the deepening scandal that big banks rigged Libor–a benchmark lending rate; JPMorgan Chase’s mounting losses from disastrous credit bets and a possible cover-up attempt; and the disappearance of customer funds from Iowa futures broker PFGBest, discovered after its founder tried to commit suicide and left a note outlining a 20-year fraud.

But the lack of populist rage doesn’t mean there’s a lack of concern about these and other scandals. We think that’s a misreading of the temperature of the American people. And if Wall Street thinks the average person doesn’t care about the nearly $6 billion trading loss at JPMorgan Chase, or the alleged Libor manipulation scandal , then the street is badly misjudging things.

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