The S&P reports that companies will have to refinance $46 trillion over the next four years. Some doubt that the credit markets will be able to handle it.
So this means you better stick with cash flow positive companies if you dare to own equities for the long term.
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In 2002 i did some homework and learned that most too big to fail banks are playing with 15 -20 derivatives at any one time. At that time, i was interested in the artificial suppression of gold prices. I told clients to get long gold and short the banks. They laughed, and of course i was way too early. I also learned that if one of those derivatives went completely against the bank, (at that time JPM, ) there was a strong chance the bank could become the next LTCM.
At any rate, here is some insight into derivatives and other losses JPM has had recently.
Comments »FITCH: JPMORGAN MAGNITUDE OF LOSS IMPLIES LACK OF LIQUIDITY
Fitch Ratings-New York-11 May 2012: Fitch Ratings has downgraded JPMorgan Chase & Co.’s (JPM) Long-term Issuer Default Rating (IDR) to ‘A+’ from ‘AA-‘ and its Short-term IDR to ‘F1’ from ‘F1+’. Fitch has placed all parent and subsidiary long-term ratings on Rating Watch Negative.
Fitch has also downgraded JPM’s viability rating (VR) to ‘a+’ from ‘aa-‘ and placed it on Rating Watch Negative. In addition, Fitch affirmed JPM’s ‘1’ support rating and ‘A’ support rating floor. A full list of rating actions follows at the end of this release.
The rating actions follow JPM’s disclosure yesterday of a $2 billion trading loss on its synthetic credit positions in its Chief Investment Office (CIO). The positions were intended to hedge JPM’s overall credit exposure, particularly during periods of credit stress.
Fitch views the size of loss as manageable. That said, the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity. It also raises questions regarding JPM’s risk appetite, risk management framework, practices and oversight; all key credit factors. Fitch believes the potential reputational risk and risk governance issues raised at JPM are no longer consistent with an ‘AA-‘ rating.
Still, at the ‘A+’ level JPM’s ratings continue to reflect its dominant domestic franchise as well as its solid and growing international franchise in investment banking and commercial banking. Capital remains sound and compares well with global peers, providing the bank with sufficient cushion to absorb a material idiosyncratic loss event. Fitch believes JPM continues to be well prepared to meet the minimum standards under Basel III.
Like other global trading and universal banks (GTUBs), the complexity of JPM’s operations makes it difficult to fully assess the risk exposure. This trading loss is precisely the kind of risk factor inherent in the GTUB business model. Fitch believes JPM, like other GTUBs, is in a highly confidence sensitive business and the longer-term implications for the firm’s reputation are not yet known. As a result, Fitch believes JPM’s ratings remain at heightened risk for downgrade until the firm’s risk governance practices, appetite, oversight and reputational impact can be further reviewed.
In addition, ongoing volatility and further losses are likely to arise from these positions as the firm unwinds them, creating some uncertainty. The firm’s Value at Risk (VaR) methodology was also changed in first-quarter 2012 (1Q’12) but subsequently reverted back to the original methodology. This resulted in a near doubling of VaR to $170 million, from 4Q’11 VaR of $88 million. The variance emanated from the CIO VaR and a negative $47 million diversification benefit. Fitch believes this also highlights some problems with modeling related to this portfolio.
Resolution of the Rating Watch Negative will conclude upon a further review of how JPM has addressed what Fitch views to be risk management and oversight deficiencies that allowed such a loss to occur. Fitch will also attempt to assess the future earnings and capital impact from these exposures. Fitch will also review the potential implications for market confidence in JPMand reputational damage as a result of this loss on both its liquidity profile and counterparty and dealings.
Fitch believes the Rating Watch resolution could result in a further downgrade of one notch if the risks are not appropriately sized and addressed. The complexity and opacity of these positions may also result in lingering concerns around the firm.
A return to a Stable Outlook will be dependent upon Fitch’s ability to gain comfort with the risk management concerns, potential ongoing nature of these synthetic credit positions and volatility they may create, as well as the reputation issues raised.
Fitch has placed all of the ratings below (with the exception of the short-term and commercial paper ratings) on Rating Watch Negative.
Fitch downgrades and affirms JPMorgan’s ratings as follows:
JPMorgan Chase & Co
–Long-term IDR to ‘A+’ from ‘AA-‘;
–Long-term senior debt to ‘A+’ from ‘AA-‘;
–Long-term subordinated debt to ‘A’ from ‘A+’;
–Preferred stock to ‘BBB-‘ from ‘BBB’;
–Short-term IDR to ‘F1’ from ‘F1+’;
–Commercial paper to ‘F1’ from ‘F1+’;
–Viability to ‘a+’ from ‘aa-‘;
–Market linked securities to ‘A+-emr’ from ‘AA-emr’.
JPMorgan Chase Bank N.A.
–Long-term deposits to ‘AA-‘ from ‘AA’;
–Long-term IDR to ‘A+’ from ‘AA-‘;
–Long-term senior debt to ‘A+’ from ‘AA-‘;
–Long-term subordinated debt to ‘A’ from ‘A+’;
–Short-term IDR to ‘F1’ from ‘F1+’;
–Short-term debt to ‘F1’ from ‘F1+’;
–Short-term deposits at `F1+’;
–Viability to ‘a+’ from ‘aa-‘;
–Market linked long-term deposits to ‘AA-emr’ from ‘AAemr’;
–Market linked securities to ‘A+emr’ from ‘AA-emr’.
Chase Bank USA, N.A.
–Long-term deposits to ‘AA-‘ from ‘AA’;
–Long-term IDR to ‘A+’ from ‘AA-‘;
–Long-term senior debt to ‘A+’ from ‘AA-‘;
–Long-term subordinated debt to ‘A’ from ‘A+’;
–Short-term IDR to ‘F1’ from ‘F1+’;
–Short-term debt to ‘F1’ from ‘F1+’;
–Short-term deposits at `F1+’;
–Viability to ‘a+’ from ‘aa-‘.
Custodial Trust Co.
–Market linked long-term deposits to ‘AA-emr’ from ‘AAemr’;
–Long-term IDR to ‘A+’ from ‘AA-‘;
–Short-term IDR to ‘F1’ from ‘F1+’;
–Viability to ‘a+’ from ‘aa-‘.
JPMorgan Bank & Trust Company, National Association
–Long-term deposits to ‘AA-‘ from ‘AA’;
–Long-term IDR to ‘A+’ from ‘AA-‘;
–Short-term IDR to ‘F1’ from ‘F1+’;
–Short-term deposits at `F1+’;
–Viability to ‘a+’ from ‘aa-‘.
JPMorgan Chase Bank, Dearborn
–Long-term deposits to ‘AA-‘ from ‘AA’;
–Long-term IDR to ‘A+’ from ‘AA-‘;
–Short-term IDR to ‘F1’ from ‘F1+’;
–Short-term deposits at `F1+’;
–Viability to ‘a+’ from ‘aa-‘;
Bear Stearns Companies LLC
–Long-term IDR to ‘A+’ from ‘AA-‘;
–Long-term senior debt to ‘A+’ from ‘AA-‘;
–Long-term subordinated debt to ‘A’ from ‘A+’;
–Short-term IDR to ‘F1’ from ‘F1+’;
–Market linked securities to ‘A+-emr’ from ‘AA-emr’.
J.P. Morgan Securities LLC
–Long-term IDR to ‘A+’ from ‘AA-‘;
–Short-term IDR to ‘F1’ from ‘F1+’.
JPMorgan Clearing Corp (formerly Bear Stearns Securities Corp)
–Long-term IDR to ‘A+’ from ‘AA-‘;
–Short-term IDR to ‘F1’ from ‘F1+’.
Banc One Financial LLC
–Short-term IDR to ‘F1’ from ‘F1+’;
–Short-term debt to ‘F1’ from ‘F1+’.
Bank One Capital Trust III
Bank One Capital Trust VI
Chase Capital II
Chase Capital III
Chase Capital VI
First Chicago NBD Capital I
JPMorgan Chase Capital X through XXVIII
–Preferred stock to ‘BBB’ from ‘BBB+’.
Bank One Corp
–Long-term subordinated debt to ‘A’ from ‘A+’.
J.P.Morgan & Co., Inc.
–Long-term senior debt to ‘A+’ from ‘AA-‘;
–Long-term subordinated debt to ‘A’ from ‘A+’.
Morgan Guaranty Trust Co. of New York
–Long-term senior debt to ‘A+’ from ‘AA-‘.
NBD Bank, N.A. (MI)
–Long-term subordinated debt to ‘A’ from ‘A+’.
Providian National Bank
–Long-term deposits to ‘AA-‘ from ‘AA’.
Washington Mutual Bank
–Long-term deposits to ‘AA-‘ from ‘AA’.
Collateralized Commercial Paper Co., LLC
–Short-term debt to ‘F1’ from ‘F1+’.
The following ratings were affirmed:
JPMorgan Chase & Co.
–Support at ‘1’;
–Support Floor at `A’;
–Long-term debt guaranteed by TLGP at `AAA’.
JPMorgan Chase Bank N.A.
–Support affirmed at ‘1’;
–Support Floor at `A’.
Chase Bank USA, N.A.
–Support affirmed at ‘1’, rating;
–Support Floor at `A’ rating.
Custodial Trust Co.
–Support at ‘1’.
JPMorgan Bank & Trust Company, National Association
–Support at ‘1’;
–Support Floor at `A’.
JPMorgan Chase Bank, Dearborn
–Support at ‘1’;
–Support Floor at `A’.
Contact:
Primary Analyst
Joo-Yung Lee
Senior Director
+1-212-908-0560
Fitch Inc.
One State Street Plaza
New York, NY 10004
Secondary Analyst
Christopher Wolfe
Managing Director
+1-212-908-0771
Committee Chairperson
Ed Thompson
Senior Director
+1-212-908-0364
Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: [email protected].
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
From 10-Q: “As part of our asset monetization planning and capital expenditure budgeting process, we closely monitor the resulting effects on the amounts and timing of our sources and uses of funds, particularly as they affect our ability to maintain compliance with the financial covenants of our corporate revolving bank credit facility. While asset monetizations enhance our liquidity, sales of producing natural gas and oil properties adversely affect the amount of cash flow we generate and reduce the amount and value of collateral available to secure our obligations, both of which are exacerbated by low natural gas prices. Thus the assets we select and schedule for monetization, our budgeted capital expenditures and our commodity price forecasts are carefully considered as we project our future ability to comply with the requirements of our corporate credit facility. As a result, we may delay one or more of our currently planned asset monetizations, or select other assets for monetization, in order to maintain our compliance. Continued compliance, however, is subject to all the risks that may impact our business strategy.”
The stock fell 14%.
Comments »Reuters is reporting that Linkedin and Silverlake are interested. Share shot higher by 20%.
“Facebook’s record initial public offering is already oversubscribed, a source familiar with the share listing said, days after the world’s largest social network embarked on a cross-country roadshow to drum up investor enthusiasm.”
Comments »“Facebook Inc. (FB), seeking as much as $96 billion in its initial public offering next week, is overvalued at that price, according to a Bloomberg investor poll.
Underscoring concerns that growth may taper for the world’s biggest social network, 79 percent of respondents in the Bloomberg Global Poll of 1,253 investors, analysts and traders who are Bloomberg subscribers said Facebook doesn’t deserve a valuation so high.”
Comments »The stock is down 5% in Asian trading, following a nightmarish quarterly loss.
Comments »Tyler Durden’s analysis on the whale of the blowup over in Jamie Dimon’s house. His thesis is most disturbing: JPM was willing to take such large risks as they knew they’d be bailed out if they went bust.
Read the article here.
Comments »“We haven’t seen any change in enterprise in Europe,” Otellini said today at a meeting for investors at the company’s headquarters in Santa Clara, California. “The year is playing out just as we expected. Enterprise is good. It’s not fantastic.” Intel, the world’s largest chipmaker, also reaffirmed its forecasts for the second quarter.
Comments »London Whale: Since March 31, 2012, CIO has had significant mark-to-marketlosses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed.
More from the filing: The Firm is currently repositioning CIO’s synthetic creditportfolio, which it is doing in conjunction with its assessment of the Firm’s overall credit exposure. As this repositioning is beingeffected in a manner designed to maximize economic value,CIO may hold certain of its current synthetic credit positions for the longer term.
More from the filing: The Firm is currently repositioning CIO’s synthetic creditportfolio, which it is doing in conjunction with its assessment of the Firm’s overall credit exposure. As this repositioning is beingeffected in a manner designed to maximize economic value,CIO may hold certain of its current synthetic credit positions for the longer term.
Those comments are likely what we are looking at for this conference call. Jamie Dimon scoffed at all the media stories about the bank’s Chief Investment Office, which the media dubbed the London Whale, during the quarterly results, calling it a “complete tempest in a teapot.” Looks like that might have been overstated.
Source: WSJ
Comments »OOPS
Comments »JPMorgan Chase- 10-Q comment on impact from potential Moody’s downgrade
On February 15, 2012, Moody’s announced that it had placed 17 banks and securities firms with global capital markets operations on review for possible downgrade, including JPMorgan Chase. As part of this announcement, the long-term ratings of the Firm and its major operating entities were placed on review for possible downgrade, while all of the Firm’s short-term ratings were affirmed. If the Firm’s senior long-term debt ratings were downgraded by one notch or two notches, the Firm believes its cost of funds would increase; however, the Firm’s ability to fund itself would not be materially adversely impacted. JPMorgan Chase’s unsecured debt does not contain requirements that would call for an acceleration of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings, or stock price.
via Jeff Bailey at ycharts.com
love free shipping as much as the next person, and also find the level of service at Amazon to be fabulous, so I read with great interest Jason Calacanis’ latest post on the Launch blog, “The Cult of Amazon Prime.”
“There are two types of people in the world: those with Amazon (AMZN) Prime and those without,” Calacanis begins. He has it and loves it, estimating it saves him 250 hours a year by keeping him out of stores and also lets him avoid “the most horrifying experience of all: retail employees.” He adds: “One of the greatest joys of the cult membership is never again having to deal with an apathetic teenager or bitter baby boomer forced to work retail.”
Comments »“A group of 18 CEOs have sent an open letter to Treasury Secretary Tim Geithner urging the continuation of favorable tax treatment for dividends and capital gains.
The CEOs come from blue-chip companies such as Verizon and Duke Energy. They posted the letter on Politico.
Long-term capital gains and most stock dividends are currently taxed at a 15 percent rate. ”
Comments »“It can be tough being a 12-year-old boy. It’s even tougher if your Mom is Renée James.
When James’ 12-year-old son asked if he could buy a particularly violent video game, his mom — who runs Intel’s software and services business — had a ridiculously well-informed opinion.
James sells the physics software used to model the game’s over-the-top mayhem. Her answer: you’re not old enough.”
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