Even in this TARP and Fed supported, “heads I win, tails you lose” of the banking industry, the “you live by the sword, you die by the sword” element has not been entirely removed.
Witness the schadenfreude-gratifying distress at JP Morgan’s commodities unit, headed by Blythe Masters (a supersaleswoman who has already gotten a fair bit of profile as one of the moving forces behind the credit default swaps business). Less than stellar results of an internal unit seldom make for Bloomberg coverage, but evidently layoffs (which appear in part the result of an ill timed and perhaps also badly-executed acquisition, the acquisition of $1.7 billion purchase of RBS Sempra) and revenue shortfalls have led to juicy, unflattering rumors.
The business also appears to contradict the usual notion that low interest rates help raise all boats. Low interest rates reduce the cost of speculation, and aside from wrong-footing some market bets, a second cause of distress for the JPM unit appears to be spread compression, the result of too many dealers (and dealer capital) ready to act on behalf of (evidently) a less than commensurate level of end customer business. Indeed, the article indicates specifically that JPM’s coal trading unit, which suffered a big loss, was a disproportionately large player relative to the size of the market.
Of course, this begs the question of why government-backstopped firms are permitted to trade commodities at all….
From Bloomberg (hat tip reader Scott):
Blythe Masters, JPMorgan Chase & Co.’s head of commodities, sought to reassure her team on an internal conference call after “extremely difficult” dismissals, defections and a first half in which some results were as much as 20 percent below expectations….
JPMorgan’s fixed-income revenue, which includes commodities, fell 27.7 percent year-over-year to $3.6 billion in the second quarter, compared with $4.9 billion a year earlier and $5.5 billion in the first quarter. The company attributed the drop to poor results in the credit and commodities markets, and a squeeze in interest rates….
Coal derivatives trader Chan Bhima made an error of judgment, not of character, in “taking a risk on our behalf,” she said. Coal prices plunged 24 percent from January through March and then surged 35 percent through June. Marchiony, the bank spokesman, said Bhima wasn’t available for comment.
The company took an oversized position both relative to their fledgling operation and relative to the market, Masters said. The error cost the company as much as $250 million, the New York Post reported June 8, without saying where it got the information…
JPMorgan “became bigger than the market,” said Robin Bhar, a metals and energy analyst at Credit Agricole CIB in London. “They were the coal market,” Bhar said, adding, “these mistakes could happen again.”
The article indicates JPM lost some key members of the RBS Sempra oil team. It also makes for intriguing reading, the quotes are so exact and lengthy (with a lot of rah rah corporate speak) because a JPM employee recorded and leaked the entire call to Bloomberg, which is particularly amusing given that Masters also chides employees for talking to the media.
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Just ridiculous that these idiots are still sitting around the casino table betting on commodities after all we’ve been through…
Re: betting on commodities
Jeeez, you’re a party-pooper! Gambling with other people’s money is the best kinda gambling there is (assuming you get to keep the winnings).
I guess even in high finance the “Field of Dreams” marketing ploy (Build it and they will come) only works if you build cool products. Too bad about the layoffs, but all that heretofore backstopped speculation is largely responsible for the suffering of a lot of people who used to add real value down in the Gembas of the world.
My Favorite: “Don’t panic,” she said in summing up the 35-minute call, a recording of which was obtained by Bloomberg News. “No one’s going to get screwed. We’re not going to do crazy things on compensation at the end of the year.””
JMr. Dimon – this is what you call running a business? Losses = no crazy things on compensation? The business doesn’t get “screwed” for losses?
Since when?
Let’s see who gets screwed, I mean, dismissed for the leak.
My math says that Ms. Masters began her internships at 18; so her saying that JPM is one of the “ballsiest businesses that I’ve ever…work with”, doesn’t mean much (unless she’s talking about the business unit, even so, so what).
I say it’s 50-50 that this is more misdirection. Bet the “fixed income” unit she’s a part of got burned with the rate increase spike at the end of the 1st Q / beginning of the 2nd Q. Blame it on commodities to justify the layoffs.
I don’t believe any of the top 4 US banks financial statements.
I venture a guess that the only misdirection is being orchestrated by Ms. Masters in an effort to veer eyes away from Ms. Masters and her performance.
Defections – which she characterized as “very interesting career decisions” could easily be interpreted as affirmative decisions to vote with ones own feet. (And presumable not the same feet that were “treading on our own toes” – a reference to media leaks about the less than stellar performance of the team and scapegoats for same).
I agree top-class businesses do not suffer from defections, media leaks and laughable cheerleading from the boss who will sell out anyone to divert attention from one’s own miscalculations. BTW, is your God the same as Lloyd’s?
Yes, I am sure you are spending lots of time with Mr. Dimon explaining to him why “we” take responsibility but why you don’t think it is fair to actually hold you accountable for losses, leaks or bad judgment.
Trading is a tough business for sure.
Boldest, gutsiest and ballsiest only works when you actually make money.
Blythe Masters? Srsly? Who writes this stuff, Charles Dickens?
I read Ms Master’s words in Bloomy – and kept seeing Jeff Skilling, motorcycling through the Mojave with a broken wrist egging his guys on to be as ballsy as him. Dimon might want to spike her coffee with some anti-androgens.
After the call, Ms. Masters contacted Crandall Bowles, a member of JPMorgan Chase’s Board of Directors and wife of Erskine Bowles, to direct her to hurry her husband along in the privatization of Social Security and the public education system.
Not sure that Ms Blythe Masters is making credible statements with the “The company took an oversized position both relative to their fledgling operation and relative to the market, Masters said. The error cost the company as much as $250 million, the New York Post reported June 8, without saying where it got the information…
JPMorgan “became bigger than the market,” said Robin Bhar, a metals and energy analyst at Credit Agricole CIB in London. “They were the coal market,” Bhar said, adding, “these mistakes could happen again.”
For background, coal futures are a newcomer to the array of futures products available to trade out there. The PR Newswire announcement that coal futures were available for trade on the ICE futures exchange was May 31 2010
The very notion that you can take an ‘oversized position’ in a regulated futures market would be a flagrant violation of NFA rules. However, Coal is regulated by the FSA, and god only knows what the FSA permits…Oh, how convenient, the FSA specified no position limits on the coal futures contract. Another fine regulatory body, must be another financially captured regulatory agency to have missed that basic requirement to set position limits.
I promise you this much, some close observer of the coal futures market watched every single step of what the govt backstopped JPM was doing with their no position limits in the coal market, and fleeced JPM of a few hundred million dollars. Well done Ms. Masters et. al at JPM.
“Error in judgment not in character” OVER MY DEAD MY ASS
What amused me about the Bloomberg article was when it said that Ms. Masters was from Trinity College, Cambridge, and then noted the number of Nobel Prizes from the college. Hope that lustre rubbed off on Ms. Masters. Or whatever.