JPMorgan Chase's fixed-income revenue fell almost 28% to $3.6 billion in the second quarter, down from $5.5 billion in the first quarter, and down from $4.9 billion for the same period last year. JPMorgan blamed an interest rate squeeze and bad results in the credit markets and the commodities markets.
There were no details of its significant loss from unwise, gigantic, wrong-way wartime coal bets. The bank took a short position so enormous that it was oversized relative to the global coal market, and second quarter losses reportedly were in the hundreds of millions of dollars.
Financial Reform Failure
Blythe Masters, managing director in charge of JPMorgan's global commodities group, spent time lobbying in Washington to dilute financial reform. By her own admission, JPMorgan's recent speculation in coal wasn't client driven; the risk was taken on JPMorgan's behalf. The Dodd-Frank Financial Reform Bill does nothing to prevent a repeat -- or even a potentially worse -- debacle.
The commodities division isn't the only area in which JPMorgan is vulnerable. Credit derivatives, interest rate derivatives, and currency trading are vulnerable to leveraged hidden bets. Ambitious managers strive to pump speculative earnings from zero to hero.
Instead of transparent and regulated markets, we have dark markets, hidden leverage, proprietary speculative trading, lax regulation and oversized risks.
"Scared Sh*tless" 1
Blythe Masters told her remaining employees that competitors are "scared sh*tless" of JPMorgan's commodities division. She claimed the layoffs of 10% of front office staff are not a sign of JPMorgan "panicking" and called the risk taking in coal trading that left JPMorgan wide-open to a massive short squeeze a "rookie error."
For individual traders, JPMorgan doesn't follow the Wall Street maxim: He who sells what isn't his'n, must buy it back or go to pris'n. The U.S. can count on JPMorgan to continue both long and short market manipulation and take its winnings and losses from blind gambles. Shareholders, taxpayers, and consumers will foot the bill for any unpleasant global consequences.
Physical oil traders from JPMorgan's brand new RBS Sempra Commodities LLP acquisition (JPMorgan paid $1.7 billion) left of their own accord to join smaller firms with less capital. Masters said these were "very interesting career decisions."
The defections were all the more interesting, because Masters began her career as a JPMorgan commodities trader. RBS Sempra's oil traders gave Masters a vote of no confidence. Their flight was a loss of "key people," whom she said she needs to replace.
Masters is poised for more debacles:
"All it's going to take is a little pop to the upside. We could be producing a 30 to 35 percent ROE and looking like gods."
"We've got too many banks chasing too little volume and margins have compressed."
"I don't want us talking to the outside world, neither about successes nor about failures."
1 All words in this article in quotation marks are from Business Week's (Bloomberg News) major scoop after the leak of a tape of an internal JPMorgan July 22 conference call: "Blythe Masters Says 'Don't Panic' as Commodities Slip," by Dawn Kopecki, August 3, 2010.
2 Based on my reading of an advance copy of Arianna Huffington's new book: Third World America: How Our Politicians Are Abandoning the Middle Class and Betraying the American Dream, Crown Books, September 2010.
i found this hilarious.
Me, too.
The United States must go to work again creating the necessary facilities that enhance our standard of living. Time is wasting. There will be a time when no one or nothing will be able to reverse the collapsing operation of the population's physical economy. Time is of the essence.
Crisis economy formation measures must be implemented now, or this great nation is doomed.
THIS IS GREAT, and almost shows capitalism works.
JP Morgan is losing money, so their rich shareholders are too.
Just like BP shareholders did when that stock went down.
This is cause for mild celebration. At least the rich make less money when they f up.
And remember, a lot of rich and powerful lose money, and they aren't happy. They don't get rich being happy when losing money, and they don't think "oh well I'll still be plenty rich, the system will go on" like we do. They are mad, and they get even.
Right now amounts to selling their shares, but in time shareholders may revolt.
For example, HP's Hurd payout: I worked for HP, I'll bet employees and shareholders are p'd.
(And BTW they hate Fiorina :-)
HuffPost was all about "shrinking the big banks". This is it happening.
Shrinking profits is shrinking banks.
Less profits mean less chance of "too big to fail".