NEW YORK (MarketWatch) -- J.P. Morgan President Jamie Dimon said Wednesday that the bank's trading profit for the second quarter would be its worst in recent memory, and his cautious tone sapped gains from shares of J.P. Morgan and its peers. NEWS FOR JPM J.P. Morgan cautions on proprietary-trading results ISM data, bonds help financials rise Credit card too conservative? You can get the red out More news for JPM "Absent any improvements in June, we expect our trading results to be worse this quarter than they were in the third quarter last year, which was a terrible quarter," Dimon said during an investor presentation in New York. In the third quarter of 2004, the bank reported trading earnings of $842 million. Dimon said profit would be weakest from trades that put the firm's own capital at risk. Capital-markets 'problem' "There is a problem in the capital-markets business this quarter," Punk Zeigel analyst Dick Bove said Wednesday. "Dimon's take on it is that it's not a risk problem, but that the yield curve has flattened, the oil price has moved. "When you have so many changes, you will see dislocation in the markets." Several analysts have recently lowered earnings estimates for top investment banks, cautioning that the trading environment had grown weaker. Proprietary trading, or the market bets a bank makes with its own money, are notoriously hard to predict. Often when the markets move as much as they have in the past months, one or more of the bigger firms on Wall Street will take a hit from being on the wrong side of a trade. Real-estate issues Concern over the housing market and mortgage lending also turned up in Dimon's comments. "I think it is a very legitimate concern that someone may get hurt in the mortgage business. Those who extended credit don't have good systems. ... If you're extending [interest-only loans] and appraisals, and lower subprime, and you have negative amortization, I think someone's going to get hurt," Dimon said. Dimon cautioned as well about the risk inherent in novel financial products and the pitfalls that can emerge as market participants while adjusting to them. "If you look at the history of financial markets ... almost every new financial product you can go back to... someone got hurt as people are learning how to manage through the real risk inherent in those products. I think you may see a little bit of that; it will be more in the new products than the old ones," Dimon said. Punk Zeigel's Bove said those comments also probably weakened shares of the big mortgage trader Bear Stearns and Cos., whose stock (BSC: news, chart, profile) fell 12 cents to $98.92 after rising earlier in the session. J.P. Morgan Chase shares (JPM: news, chart, profile) ended the day up a penny at $35.76, well off their high for the day. "Dimon is saying that earnings are not going to be robust," according to Bove, "and you are going to have to wait until I [Dimon] fix this machine."
their swaption desk got hammered this year, the head of the desk got sacked and the losses are rumored to be on the order of 200mm. I think all of their FI prop groups did not do too hot, needless to say the correlation desk P&L was a **** mess.
yeah the otc interest rate options group got chopped to bits last year by the rel val hedge funds... -200mm is about the right figure, but when you consider what the desk should have MADE with its huge franchise (i would guess the options book has a 150mm-200mm budget) they were actually down close to half a BILLION! what was so confounding about the loss was that it was predominantly the result of silly hubris and rookie mistakes.... the lions share of the losses were due to selling way-too-cheap lottery tickets on the swap rate movenments on employment report fridays and standing in front of the locomotive as freddie mac liquidated their inventory of high-strike payer swaptions....
at last - i have found someone who is losing more money than me this quater!! life aint so bad after all!!! hehehehehe. just goes to show that these ivy league guys aint all theyre cracked up to be. im always amazed how people look at these bank traders like theyre some sort of demi gods. they aint. smoked.
maybe you want to re-read the following portion: "Absent any improvements in June, we expect our trading results to be worse this quarter than they were in the third quarter last year, which was a terrible quarter," Dimon said during an investor presentation in New York. In the third quarter of 2004, the bank reported trading earnings of $842 million.
yes - i believe the prop group did quite well - i was talking about the otc market making desk, which is an entirely separate biz... the prop group's core strategy - holding mortage-backed securities in inventory while opportunistically trading in and out f their short vol and negative convexity profie - most certainly did quite well recently as MBS spreads collapsed with the rest of credit product and implied vols dropped off.... unfortunately the dealer desk was not quite as fortunate....