Understanding JP Morgan Loss

Leading financial media broke the story on thursday night about the $2bn trading loss on credit derivatives trading, which chief executive Jamie Dimon blamed on errors,sloppiness and bad judgement” and warned “could get worse”.

Well the Centre of loss in non other than bank’s chief investment office (CIO).It is responsible for managing and offsetting the vast amounts of “credit exposure” the bank incurs through its daily business of lending and investing on behalf of clients.It is legally allowed under the Volcker rule.

In the month of April 2012 Bloomberg and Wall street journal made the headlines JPMorgan Trader’s Positions Said to Distort Credit Indexes and ‘London Whale’ Rattles Debt Market.

The stories where pointing towards Bruno Iksil, the trader works for the bank’s “Chief Investment Office”.

The mystery trader, perhaps Mr Iksil, has gone long in a big way on the Markit CDX.NA.IG.9, i.e. sold large amounts of protection against the 121 credits contained therein. Hedge funds are aware of the big position.

The CDX.NA.IG indices are comprised of 125 North American corporate credits that are investment grade when the index begins trading. Taking a position in the index allows traders to hedge or speculate. Going long means selling protection on the index in the expectation that the underlying company credits improve or at least do not default. Going short means buying protection on the index. The net notional value of the CDX.NA.IG.9 has surged from about $90bn at the start of the year to $150bn in April – indicating a big jump in trading. (Markit)

Watch out the space..

6 thoughts on “Understanding JP Morgan Loss

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