Whose $6 Billion Did the London Whale Lose?
From Bloomberg:
Whose $6 billion did JPMorgan Chase
& Co. (JPM) lose during the now-infamous London Whale debacle?
Was it depositors’ money or shareholders’ money? Or was no
money lost at all? And was the whole thing the very “tempest in
a teapot” that Chief Executive Officer Jamie Dimon originally
called it?
What the bank has told us so far -- during its news
conference on May 10, in Dimon’s two rounds of testimony before
Congress, and in the come-to-Jesus live presentation to analysts
on July 13 -- is that the man behind the trades, Bruno Iksil,
aka the London Whale, worked in the company’s chief investment
office. The CIO’s job, we have been told, is to invest the
difference between the $1.1 trillion in deposits the bank has on
hand from its customers and the $750 billion the bank has lent
out to corporate borrowers.
That $350 billion -- an awful lot of money even by Wall
Street’s standards -- was invested on a daily basis under the
direction of a well-respected banker, Ina Drew, who was paid
about $15 million a year for her services. Drew and her team
invested the $350 billion in short-term, seemingly safe
investments. The overall yield on the portfolio was about 2.6
percent, according to Dimon.
Dangerous Hedge
With Drew’s authorization -- but, Dimon insists, without
his knowledge -- Iksil took a $10 billion chunk of the $350
billion portfolio and made a proprietary bet in an obscure debt
index. (JPMorgan Chase likes to call Iksil’s gamble a
“hedge.”) For myriad reasons -- among them that the bet was
wrong and that Iksil had such a large position in the tranche
that escape would have been extremely costly -- JPMorgan Chase
has lost $5.8 billion, and counting.
To my mind, the money that Iksil lost was depositors’
money. Iksil worked for the CIO, where depositors’ money is
invested until it is lent out. The trade lost almost $6 billion
in cash, which we know is real because hedge funds such as Saba
Capital, run by wunderkind Boaz Weinstein, and Blue Mountain
Capital staked out the other side of Iksil’s trade and made a
fortune. How could there be any confusion that the money Iksil
lost came from the bank’s depositors?...MORE
