‘Unscathed’ JPMorgan Said to Reap $5 Billion Derivatives Profit

[Joanne98]

March 3 (Bloomberg) -- JPMorgan Chase & Co. managed to generate $5 billion in profit during the worst year in Wall Street history by trading over-the-counter fixed-income derivatives, two people with knowledge of the results said.

The largest U.S. bank by market value, which reported $5.6 billion of total profit in 2008, hasn’t disclosed earnings for its interest-rate swap, municipal bond and foreign exchange derivatives group. The unit was among the most profitable at the New York-based company, said the people, who declined to be identified because they weren’t authorized to divulge the figures. JPMorgan spokeswoman Kristin Lemkau declined to comment.

The JPMorgan trading desk, led by the 38-year-old Matt Zames, who previously worked at hedge fund Long-Term Capital Management LP, may have benefited as the collapse of Lehman Brothers Holdings Inc. and JPMorgan’s takeover of Bear Stearns Cos. left companies and hedge funds with fewer trading partners in the private derivatives markets. JPMorgan emerged “unscathed by the disasters” on Wall Street and positioned to capture more revenue as trading volumes grew, said Craig Pirrong, a finance professor at the University of Houston.

“It’s a flight to quality,” Pirrong said. “They expanded the scale of business, the number of trades people wanted to do with them, and it gave them pricing power.”

Derivatives are contracts whose value is derived from an underlying asset such as stocks, commodities or interest rates. Over-the-counter refers to a type of private, unregulated derivative contract banks trade amongst themselves or with clients.

Bids and Offers

Among commercial lenders, JPMorgan dominates OTC derivatives trading, according to data compiled by the Office of the Comptroller of the Currency. The bank held $87.7 trillion worth of outstanding OTC contracts as of Sept. 30, more than the next two banks, Bank of America Corp. and Citigroup Inc., combined.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_v5DTUmYDbA&refer=worldwide

[hobbit709]

1. I'd like to see a full scale audit

of the books of every one of these clowns that got our tax money. I'd make that a requirement before another dime goes to any of them.

[GoesTo11]

2. That is an excellent idea!

and not just for recipients of govt cash. How about a criminal RICO investigation of unprecedented scale?

[JohnWxy]

3. This is why the investment bankers are fighting the bill in Congress to regulate CDSs

They got the language prohibiting uncovered OR "naked" Credit Default Swaps taken out of the bill, so speculating using CDSs can continue.:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x59010

[nbsmom]

4. Why is any of this stuff still legal?

They suspended over the summer, cooled market down. Short selling was allowed again in November, and you know how that's worked out so far.

Get rid of it, or as Robert Heller recommended in January, create a Prudent Investor's Exchange (PIE) so we can stop this madness with our retirement $$$.

[JohnWxy]

5. Google Commodity Futures Modernization Act - speculating using CDs is legal and not regulated.