JPMorgan (NYSE: JPM) Trading Loss May Reach $9 Billion

Orlando, FL 6/28/12 (StreetBeat) -- Losses on JPMorgan Chase's (NYSE: JPM) bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation.

When Jamie Dimon, the bank's chief executive, announced in May that the bank had lost $2 billion in a bet on credit derivatives, he estimated that losses could double within the next few quarters. But the red ink has been mounting in recent weeks, as the bank has been unwinding its positions, according to interviews with current and former traders and executives at the bank who asked not to be named because of investigations into the bank.

The bank's exit from its money-losing trade is happening faster than many expected. JPMorgan previously said it hoped to clear its position by early next year; now it is already out of more than half of the trade and may be completely free this year.

As JPMorgan has moved rapidly to unwind the position - its most volatile assets in particular - internal models at the bank have recently projected losses of as much as $9 billion. In April, the bank generated an internal report that showed that the losses, assuming worst-case conditions, could reach $8 billion to $9 billion, according to a person who reviewed the report.

With much of the most volatile slice of the position sold, however, regulators are unsure how deep the reported losses will eventually be. Some expect that the red ink will not exceed $6 billion to $7 billion.

Nonetheless, the sharply higher loss totals will feed a debate over how strictly large financial institutions should be regulated and whether some of the behemoth banks are capitalizing on their status as too big to fail to make risky trades.

JPMorgan plans to disclose part of the total losses on the soured bet on July 13, when it reports second-quarter earnings. Despite the loss, the bank has said it will be solidly profitable for the quarter - no small achievement given that nervous markets and weak economies have sapped Wall Street's main businesses. To put the size of the loss in perspective, JPMorgan logged a first-quarter profit of $5.4 billion.

More than profits are at stake. The growing fallout from the bank's bad bet threatens to undercut the credibility of Mr. Dimon, who has been fighting major regulatory changes that could curtail the kind of risk-taking that led to the trading losses. The bank chief was considered a deft manager of risk after steering JPMorgan through the financial crisis in far better shape than its rivals.

"Essentially, JPMorgan has been operating a hedge fund with federal insured deposits within a bank," said Mark Williams, a professor of finance at Boston University, who also served as a Federal Reserve bank examiner.

A spokesman for the bank declined to comment.

In its most basic form, the losing trade, made by the bank's chief investment office in London, was an intricate position that included a bullish bet on an index of investment-grade corporate debt. That was later combined with a bearish wager on high-yield securities.

The chief investment office - which invests excess deposits for the bank and was created to hedge interest rate risk - brought in more than $4 billion in profits in the last three years, accounting for roughly 10 percent of the bank's profit during that period.

In testimony before the House Financial Services Committee last week, Mr. Dimon said that the London unit had "embarked on a complex strategy" that exposed the bank to greater risks even though it had been intended to minimize them.

JPMorgan executives are briefed each morning on the size of the trading loss. The tally could shrink if the market moves in JPMorgan's favor, the people briefed on the situation cautioned.

But hedge funds and other investors have seized on the bank's distress, creating a rapid deterioration in the underlying positions held by the bank. Although Mr. Dimon has tried to conceal the intricacies of the bank's soured bet, credit traders say the losses have still mounted.

While some hedge funds have compounded the bank's woes, others have been finding it profitable to help JPMorgan get clear of the losing credit positions.

One such fund, Blue Mountain Capital Management, has been accumulating trades over the last couple of weeks that might help reduce the risk of the bets made by JPMorgan in a credit index, according to interviews with more than a dozen credit traders. The hedge fund is then selling those positions back to the bank. A Blue Mountain spokesman declined to comment.

As traders in JPMorgan's London desk work to get out of the huge bet, which started generating erratic losses in late March, the traders based in New York are largely sitting idle, according to current traders in the unit.

"We are in a holding pattern," said one current New York trader who asked not to be named.

Long before the losses started mounting, senior executives at the chief investment office in New York worried about the trades of Bruno Iksil, according to the current traders.

Now known as the London Whale for his outsize wagers in the credit markets, Mr. Iksil accumulated a number of trades in 2010 that were illiquid, which means it would take the bank more time to get out of them.

In 2010, a senior executive at the chief investment office compiled a detailed report that estimated how much money the bank stood to lose if it had to get out of all Mr. Iksil's trades within 30 days. The senior executive recommended that JPMorgan consider putting aside reserves to deal with any losses that might stem from Mr. Iksil's trades. It is not known how much was recommended as a reserve or whether Mr. Dimon saw the report, but the warning went unheeded.

The losses are the most embarrassing fumble for Mr. Dimon since he became chief executive in 2005.

In appearances before Congress, Mr. Dimon has taken pains to assure investors and lawmakers that the overall health of JPMorgan remained strong and that it had more than sufficient amounts of capital to weather any economic dislocation.

Even as he apologized for the trade, calling it "stupid," Mr. Dimon emphasized to lawmakers that the loss was an "isolated incident."

The Federal Reserve is currently poring over the bank's trades to examine the scope of the growing losses and the original bet.

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Research in Motion (Nasdaq: RIMM), Struggling, Ponders a Dim Future

Orlando, FL 6/1/12 (StreetBeat) -- After rejecting the idea of a sale for months, Research in Motion (Nasdaq: RIMM) acknowledged on Tuesday that it was considering "strategic business model alternatives" - or in banker's speak, RIM, which makes the BlackBerry, said it was pondering a potential deal for all or parts of the company.

But did it wait too long?

A year ago, RIM, a Canadian company, became the subject of takeover rumors, after Google’s (Nasdaq: GOOG) $12.5 billion deal for Motorola Mobility. Then, analysts believed that RIM would draw interest from Microsoft (Nasdaq: MSFT), Amazon.com (Nasdaq: AMZN) or any number of Chinese phone manufacturers who could afford what would have been a pricey deal.

The company's executives rebuffed the idea, arguing that RIM was on the verge of a turnaround. New phones were coming that combined touch-screens with BlackBerry's e-mail and security features. And the PlayBook, with an industrial-strength operating system, could stand toe to toe with the iPad.

But RIM's prospects have withered since. In March, the company disclosed that its quarterly sales had plunged 20 percent from the previous quarter, as customers migrated to iPhones and Android devices. The company warned on Tuesday that it expected another loss.

The weakness is reflected in the stock's sharp decline. RIM's market value is just $5.4 billion, down roughly 76 percent from a year ago. Its share price fell slightly on Thursday, to $10.33.

"Buying this stock is like going to the casino," analysts at National Bank Financial wrote in a research note on Wednesday.

Now, executives appear to be reluctantly admitting they need to make a change. On Tuesday, the company said that it is conducting a strategic review. As part of its effort, RIM tapped JPMorgan Chase (NYSE: JPM) and RBC Capital Markets to help assess its potential options.

Those efforts may not lead to a sale, but instead partnerships with other companies or the licensing of BlackBerry software. Earlier this year, RIM's chief executive, Thorsten Heins, disavowed any need to consider "drastic change."

Ehud Gelblum, an analyst at Morgan Stanley, wrote in a note - entitled "No Happy Ending in Sight" - on Wednesday that he did not believe RIM was seeking to sell itself as a whole, but may consider outsourcing its network operating center or selling off parts.

That may be the best option. Earlier this year, the sales prospects for RIM did not look promising. A few analysts believed that RIM did not have "much to offer" a potential buyer.

The company's prospects may have deteriorated in the intervening months. Some analysts indicate that RIM may only be worth the total value of its patents and its cash, roughly $1.8 billion. It is unclear what the patents may fetch, though analysts at Jefferies estimated last fall that the intellectual property could bring $1 billion to $2.5 billion.

Should RIM put itself on the auction block, it may find the universe of potential buyers remains fairly small. Microsoft, long considered a possible suitor, has been focused on its new Windows operating system and its tie-up with Nokia. Amazon.com has cast its lot with a version of Google's Android. And buyers in China and India may face complaints from important BlackBerry customers like the United States and Canadian governments.

And patience isn't necessarily a virtue in deal-making.

Take Yahoo (Nasdaq: YHOO), which Microsoft offered to buy for nearly $45 billion in 2008. The talks quickly cratered, and a deal never panned out. Yahoo has since run through three chief executives and cast about for a new business model.

It has agreed to sell about half of its stake in the Alibaba Group of China, a move that will generate cash that can be paid out to investors. And it has revamped its board.

But it is unclear whether such efforts will make up for Yahoo's 58 percent drop in value since Microsoft's takeover attempt.

Then there is Palm Inc., which is often compared with RIM at this stage. Having failed to gain traction with a series of devices built on its own smartphone operating system, the company began a sales process several years ago, drawing in five bids.

One suitor, Hewlett-Packard (NYSE: HP), was pressured into raising its offer by 20 percent, and ultimately paid $1.2 billion to win the bidding. The deal represented a 23 percent premium to the smartphone maker's closing price from the day before the offer was announced in 2010. Yet by that point, Palm's stock price had dropped 50 percent over the previous 12 months.

Still, there's some hope left for RIM. Motorola Mobility had largely been left for dead by August 2011, trailing Samsung and H.T.C. in the race for Android device dominance. Then Android's creator, Google itself, arrived with a bid carrying a whopping 63 percent premium, spurred by the valuable patents that Motorola held.

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Bank stocks hurt after surprise $2B JPMorgan (NYSE: JPM) loss

Palm Beach, FL 5/11/12 (StreetBeat) -- Bank stocks were hammered in Britain and the United States on Friday, partly because of fear that a surprise $2 billion trading loss by JPMorgan Chase (NYSE: JPM) would lead to tougher regulation of financial institutions.

In Britain, shares of Barclays and Royal Bank of Scotland were down more than 2 percent. American banks were poised to open sharply lower later in the morning.

JPMorgan stock was the hardest hit, with shares down almost 9 percent in premarket trading after the bank's revealed the loss in a trading portfolio designed to hedge against risks the company takes with its own money.

British stock analysts said that bank stocks were hurt mostly because of regulatory fear, not because there was reason to believe other banks would discover similar losses.

"Based on the limited information available, it's attributed to egregious error within JPMorgan, so there is no reason to read across that specific loss to any other bank," said Ian Gordon, analyst at Investec Securities.

Jordan Lambert, a trader at Spreadex in London, said the market reaction was understandable.

"When such shocks occur, it is wise to err on the side of caution and consider whether it is a possible tip-of-the-iceberg scenario, especially when one contemplates the interconnectedness of the banking system," he said.

The trading loss was an embarrassment for JPMorgan, which came through the 2008 financial crisis in much better health than its peers. It kept clear of risky investments that hurt many other banks.

The loss came in a portfolio of the complex financial instruments known as derivatives, and in a division of JPMorgan designed to help control its exposure to risk in the financial markets and invest excess money in its corporate treasury.

"The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought," CEO Jamie Dimon told reporters on Thursday. "There were many errors, sloppiness and bad judgment."

Bloomberg News reported in April that a single JPMorgan trader in London, known in the bond market as "the London whale," was making such large trades that he was moving prices in the $10 trillion market.

Dimon said the losses were "somewhat related" to that story, but seemed to suggest that the problem was broader. Dimon also said the company had "acted too defensively," and should have looked into the division more closely.

The Wall Street Journal reported last month that JPMorgan had invested heavily in an index of credit-default swaps, insurance-like products that protect against default by bond issuers.

Hedge funds were betting that the index would lose value, forcing JPMorgan to sell investments at a loss. The losses came in part because financial markets have been far more volatile since the end of March.

Partly because of the $2 billion trading loss, JPMorgan said it expects a loss of $800 million this quarter for a segment of its business known as corporate and private equity. It had planned on a profit for the segment of $200 million.

The loss is expected to hurt JPMorgan's overall earnings for the second quarter, which ends June 30. Dimon apologized for the losses, which he said occurred since the first quarter, which ended March 31.

"We will admit it, we will learn from it, we will fix it, and we will move on," he said. Dimon spoke in a hastily scheduled conference call with stock analysts. Reporters were allowed to listen.

JPMorgan is trying to unload the portfolio in question in a "responsible" manner, Dimon said, to minimize the cost to its shareholders. Analysts said more losses were possible depending on market conditions.

Dimon said the type of trading that led to the $2 billion loss would not be banned by the so-called Volcker rule, which takes effect this summer and will ban certain types of trading by banks with their own money.

The Federal Reserve said last month that it would begin enforcing that rule in July 2014.

Some analysts were skeptical that the investments were designed to protect against JPMorgan's own losses. They said the bank appeared to have been betting for its own benefit, a practice known as "proprietary trading."

Bank executives, including Dimon, have argued for weaker rules and broader exemptions.

JPMorgan has been a strong critic of several provisions that would have made this loss less likely, said Michael Greenberger, former enforcement director of the Commodity Futures Trading Commission, which regulates many types of derivatives.

"These instruments are not regularly and efficiently priced, and a company can wake up one day, as AIG did in 2008, and find out they're in a terrific hole. It can just blow up overnight," said Greenberger, a professor at the University of Maryland.

The disclosure quickly led to intensified calls for a heavier-handed approach by regulators to monitoring banks' trading activity.

"The enormous loss JP Morgan announced today is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making," said Sen. Carl Levin, D-Mich.

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LinkedIn (NYSE: LNKD) Leaps 10% on Earnings Beat, Rosy View

Northern, WI 5/4/12 (StreetBeat) -- Shares of LinkedIn (NYSE: LNKD: 118.79, +9.38, +8.57%) soared 10% Friday morning as Wall Street cheers the professional social network’s bullish results and upbeat guidance.

A slew of analysts hiked their price targets on the recently-public company a day after it released stronger-than-expected first-quarter results and unveiled a $118.8 million acquisition.

“LinkedIn is disrupting both the online and offline job recruitment markets, and deeper corporate penetration and increasing member engagement will drive strong results going forward,” Doug Anmuth, an analyst at JPMorgan Chase (NYSE: JPM: 42.32, -0.69, -1.60%), wrote in a research note, according to Reuters.

Mountain View, Calif.-based LinkedIn said late Thursday it earned $5 million, or 4 cents a share, last quarter, up from $2.1 million, or breakeven, a year earlier. Excluding one-time items, it earned 15 cents a share, easily beating forecasts for 9 cents a share.

Revenue raced 101% higher to $188.5 million, topping the Street’s view of $178.6 million.

LinkedIn also raised its full-year guidance, projecting 2012 sales of $880 million to $900 million. Even the low end of that new range would exceed estimates from analysts for $876.8 million. Likewise, LinkedIn projected second-quarter revenue of $210 million to $215 million, compared with the Street’s view of $207.9 million.

In response to the upbeat numbers, Anmuth of JPMorgan raised his price target on LinkedIn to $135 from $90 and maintained an “overweight” rating.

LinkedIn also unveiled a cash-and-stock deal to acquire content sharing company SlideShare for $118.75 million.

Shares of LinkedIn soared 9.88% to $120.22, tacking onto their 2012 surge of 69%.

LinkedIn shares have nearly tripled since going public at $45 last year.

Later this month social-networking leader Facebook is set to launch a massive initial public offering that could value the Mark Zuckerberg company at nearly $100 billion. By comparison, LinkedIn’s market cap stood at just under $11 billion as of Thursday’s close.

Please contact www.thestreetbeat.com for interest in our latest investor relations platform the “CEO Interview Series” with its host Steve Kanaval. The package includes a one-on-one interview with a seasoned industry professional; published segment to our web site with embedded audio/video file; and a compressed file that can be easily e-mailed out to your current and/or potential investors. Please e-mail bflautt@gmail.com or call (662) 392-0740 for pricing and scheduling.

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JPMorgan (NYSE: JPM) misses Street; 4Q profit down 23 percent

Orlando, FL 1/13/12 (StreetBeat) -- JPMorgan Chase's (NYSE: JPM) income fell 23 percent in the fourth quarter of 2011 after the bank set aside a large sum for litigation reserves and its investment banking income declined.

The largest bank in the nation said Friday it earned $3.7 billion, or 90 cents per share. The results fell short of the 93 cents per share estimated by analysts surveyed by FactSet. Revenue fell 17 percent to $22.2 billion.

For the full year, JPMorgan Chase & Co. posted record net income of $19 billion, compared with $17.4 billion in the prior year.

The New York bank set aside $528 million for additional litigation charges in the quarter, the latest sign that the banking industry is still dealing with the fallout from poorly-written mortgages from years past.

Volatility in stock and bond markets caused by Europe's debt crisis also hurt JPMorgan's investment banking business. Fees declined 39 percent to $1.1 billion. Debt underwriting fell 40 percent, and stock underwriting fell 65 percent.

JPMorgan also had to book a loss of $567 million loss from an accounting rule that applies to the value of its own corporate debt. Because the value of its debt rose in the fourth quarter, the bank would theoretically have to pay more to buy it back in the open market. When that happens, accounting rules require that the bank record a charge against earnings. Corporate bond prices recovered in the fourth quarter after declining sharply in the third quarter.

In another sign that American households are becoming more stable financially, JPMorgan said more credit card customers have been paying their bills on time, leading to lower losses for the bank. JPMorgan was able to take a profit of $730 million by reducing its loan reserves set aside for credit card defaults.

That was good news. As the largest bank in the country serving 50 million customers, JPMorgan's results provide a pulse for how well the U.S. economy is performing.

JPMorgan's stock fell 2.3 percent to $36.01 in pre-market trading.

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Clinton Townsend's ATM Fee Fix: Watch Ads Instead Of Paying Charge

Orlando, FL 12/5/11 (StreetBeat) --What if there was a simpler solution to avoiding an ATM fee than running all over town looking for an in-network machine? One Brooklyn, New York-based entrepreneur says he found it.

Instead of paying a fee to use an out-of-network ATM fee, Clinton Townsend, the founder of Free ATMs NYC, proposes consumers watch an ad, the New York Daily News reports. Townsend has already installed one of the free ATMs at a New York City music venue. Townsend's business plan may be coming at just the right time. Americans spent $7.1 billion in ATM fees in 2010, according to Oliver Wyman, a consulting firm.

Towsend, whose company is independent from banks, said the ads don't hold customers up because it doesn't take any longer for his ATMs to process a transaction than it takes a bank to respond to a request. He added, that the company considers both whether a location will offer a good demographic for advertisers and consumers' safety before choosing a location.

But if consumers would prefer paying a fee to watching an advertisement, Townsend's ATMs give them the option to do so, he said. If they decide to pay the fee, ATM users have the option of donating part of it to a charity.

If past banking experiments are any indication, Townsend's idea may take off. JPMorgan Chase (NYSE:JPM) abandoned a test program where the bank charged non-Chase customers in a few states $4 or $5 to use the banks ATMs after just two months, according to CNNMoney.

The bank went back to charging its usual $3 fee for out of network customers after determining that the higher fees weren't generating enough revenue to justify expanding the program nationwide. Still, the $3 fee is higher than the average charge in the cities with the highest ATM fees, according to bankrate.com.

But Chase's decision to just lower its ATM fee likely won't satisfy consumers. Seventy-Seven percent of respondents to a November Ally Bank survey said that they don't think it's okay for a bank to charge an ATM fee.

Consumers aren't the only ones complaining about high ATM fees. ATM operators filed a lawsuit against Visa and Mastercard in October, alleging that the credit card companies' rules prevent the operators from offering their services at a lower price.

Banks have been quietly boosting fees in recent months in an effort to recoup revenue lost due to new limits on swipe fees, overdraft fees and other charges that took effect as part of the Dodd-Frank financial regulations. Bank of America (NYSE:BAC) announced in September that it would charge customers $5 to use their their debit card for purchases starting in 2012. But the bank and others ultimately abandoned plans to charge for debit card use after criticism came pouring in.

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