Jamie Dimon, the embattled CEO of JPMorgan, picked up a public show of support recently from none other than Brian Moynihan, the CEO of Bank of America, one of JPMorgan's biggest competitors.
Moynihan said that Dimon has the experience and the skills needed to manage the fallout from trading losses. "He'll manage through it," he was quoted by Bloomberg.
But JPMorgan's loss is Bank of America's gain. Indeed, Bank of America, along with Goldman Sachs and other banks and hedge funds, have taken the other side of many of JPMorgan's controversial CDS index trades, and they have been rewarded handsomely. It's a zero-sum game, and every trading dollar that JPMorgan loses translates into a concomitant gain for counterparties. These positions for the most part have not been closed out.
It's unclear how the dust will settle. A lot may depend on expiration dates. According to some reports, some experts think that the losses could eventually hit billion on paper, which would more than wipe out second quarter profits at JPMorgan, which were expected to be billion before the trading fiasco was announced. What we may be seeing is a lot of market froth as hedge funds bid up the value of the CDSs sold by JPMorgan, sensing blood.
Once the froth settles, fundamentals may take hold a bit, which might bid up bonds in an improving macro environment. That may mute the paper losses on the derivatives somewhat. We'll just have to see how this plays out. Right now, it's JPMorgan against the world, and the world is winning.
- here's an article from The Independent
How big will JPMorgan's losses be?