- May 14, 2012
London Whale costs JPMorgan 17 bps in credit risk
17 basis points according to last Friday’s market. JPMorgan Chase’s unexpected billion-dollar trading losses caused the company’s (as well as its competitors’) credit default swaps to jump by just that much. Not everyone may call it unexpected, however, as Bloomberg had first reported on this very issue last month followed up by the Wall Street Journal saying,
The French-born trader [the so-called ‘London Whale’ – Bruno Michel Iksil] commutes to London each week from Paris and works from home most Fridays, the Journal article said, citing a person who worked with him.
The trader may have built a $100 billion position in contracts on Series 9 (IBOXUG09) of the Markit CDX North America Investment Grade Index, according to the people, who said they based their estimates on the trades and price movements they witnessed as well as their understanding of the size and structure of the markets.
According to Bloomberg,
Credit-default swaps insuring JPMorgan’s debt climbed 17 basis points to 124, the highest since Feb. 16……Bonds of JPMorgan declined the most in six months, widening the gap in yield between the lender’s $6 billion of undated 7.9 percent junior subordinated notes and the 0.875 percent Treasury due 2018 by 16 basis points to 392.2 basis points, according to Bloomberg Bond Trader prices at 10:10 a.m. in London. The price of the note, callable in 2018, fell 2.2 cents on the dollar to 107.84 cents, pushing up the yield to 6.3 percent.
Since then, it appears JP Morgan’s CDS has increased further to the 130 bps range. While higher than before, the bank’s relative level is still lower than other competitors such as Goldman Sachs, Bank of American and Morgan Stanley at 300 bps, 290 bps and 400 bps, respectively. Of the major American banks, Wells Fargo maintains one of the lowest CDS prices at around 100 bps.