Saturday, May 19, 2012

Morgan Stanley Answers The 11 Biggest Questions About The JPMorgan's Huge Trading Loss

JP Morgan Jamie Dimon

Morgan Stanley's top banking analyst Betsy Graseck just released an excellent report titled The $X Billion Question, which evaluates JPMorgan and the CIO unit that has reportedly lost over $2 billion on some bad trades.

Morgan goes through to look in depth at what the group was trading, what the performance of the unit should look like going forward, and how big of an affect the ongoing loss will have on both the bank and the rest of the industry.

Her report included an FAQ which we highlight here.

What's our credit hedge loss estimate?

All in, Graseck estimates a $5.2b of pre-tax hedge losses, of which $3.25b is recognized in Q2.

Source: Morgan Stanley



What's the synthetic credit trade that JPM has?

Graseck bases this from reports from WSJ, NYTimes, Bloomberg

1) Bought protection on the 2012 IG9

2) Sold protection on 2017 IG9

3) Bought protection on High Yield Index

Source: Morgan Stanley



What?s the price action been on those legs?

Spreads on IG9 2012s are up 20% QTD. Spreads on IG9 2017s have widened 36% QTD.

Source: Morgan Stanley



See the rest of the story at Business Insider

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