Receiving Wide Coverage ...
Eating JPMorgan's Lunch: By now we've all read or heard about Mitt Romney's quote to the effect that if JPMorgan lost $2 billion, someone else made $2 billion. But who were those fortunate counterparties? The Journal reports that "about a dozen banks," including Bank of America and Goldman Sachs, have either directly or indirectly profited from JPM's soured trading positions. The article also identifies a handful of hedge funds that made money off the London Whale's miscalculations. Interestingly, Citigroup tells the Journal on the record that it didn't score gains from JPM's wrong bets. Meanwhile, Bloomberg News interviews the manager of one of the hedge funds that took the other side of a credit derivative trade from JPM. He tells the wire service his counterparty's losses could get worse — "if we end up with a catastrophe in Europe in the short run, they're probably not positions that anyone would want to have" — but adds he's "not looking to try and cause them any problem." It's not personal, Jamie, it's strictly business.
Gensler Flexes: In Congressional testimony, CFTC chief Gary Gensler cited the JPM trading loss as evidence that all derivatives involving U.S. firms, even transactions with overseas counterparties, must be subject to Washington's oversight under Dodd-Frank. Wall Street Journal, New York Times
Other Regulatory Fallout: A lengthy piece in the FT says the London Whale debacle could prompt regulators to rein in the practice of “portfolio hedging” using derivatives. The Times covers a public appearance by JPM chief Jamie Dimon at which he defended “legitimate” portfolio hedging but was uncharacteristically diplomatic in his comments on the Volcker Rule: “I don’t disagree with the intent. … Believe me, I’ve got the same interest” in preventing blowups. Another story in the FT reports that the Office of the Comptroller of the Currency, as JPMorgan’s regulator, is coming under fire. The bank and the agency have backpedaled from earlier indications that the London Whale’s trades would have been allowed under the Volcker Rule, had it taken effect (which it doesn’t until July 22, and even then, not really for another two years). The article reminds readers that the OCC has often been described as overly accommodating to banks in general, and quotes a former Treasury official as saying “there’s some sort of cultural and ideological capture at the OCC.” Hey, at least they’re not the OTS.
Buttressing the ‘Fortress’: Dimon also said JPMorgan would suspend a plan announced two months ago to repurchase $15 billion of shares. The Journal’s “Heard on the Street” column writes approvingly: “Discretion is the better part of valor. … Although Mr. Dimon likes to boast of J.P. Morgan's ‘fortress balance sheet,’ he must keep one eye firmly on looming capital requirements,” and the CEO had previously said that the London losses would make a small dent in one of its Basel capital ratios. Wall Street Journal, Financial Times, New York Times
New York Times
“DealBook” editor at large Andrew Ross Sorkin argues that Glass-Steagall would not have prevented the last financial crisis.
New York State financial superintendent Benjamin Lawsky’s seven month-old investigation of forced-placed homeowners insurance practices is zooming in on the two biggest carriers in that market. Lawsky is examining whether Assurant and QBE “effectively bought their dominant positions by paying kickbacks to banks disguised as commissions or other business,” the Times reports. The regulator said at a public hearing he’s thinking about “whether banning these relationships makes sense.” Sometimes, the insurers send payments to bank subsidiaries that have no employees, such as “Banc One,” a JPMorgan Chase vehicle named after one of the bank’s predecessors. Lawsky said at the hearing that this “just doesn’t smell right.” Just remember who first sniffed out that there would be trouble for banks in this area.