Bad Day for Big Banks and Big Derivatives
June 29, 2012 • 8:43AM

Two of the world's biggest banks were shown to be menaces to the financial system yesterday, sending all financial stocks plunging and markets generally falling.

Despite many denials from other media during the day, the New York Times report that JPMorgan may be losing $9 billion from its huge London derivatives bet, stands up. The Times' sources appear to include some inside JPMorgan Chase itself, who discussed what the bank's running internal reports on the mega-loss are showing. They show that the London derivatives loss is now "internally" estimated at $6-9 billion, with only half of the $100-150 billion bet "unwound." Morgan's stock value had previously dropped by $23 billion since the first announcement of the loss, and it fell more than 2% more yesterday.

JPMorgan Chase's profit in the first quarter was $5.4 billion, so it could report a second-quarter loss on July 13 if it takes the London loss all at once — highly unlikely, as CEO Jamie Dimon has insisted to all who would listen that the bank would be profitable this quarter.

The Times reported, "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."

This news broke on the same day that the British Barclay's bank had just admitted "pervasive rigging" and manipulation of the all-but-sacred LIBOR bank-lending rate (London Interbank Offered Rate), determined in London, on which values of more than $20 trillion worth of interest-bearing assets are based. The Barclay banksters will start by paying a $450 million fine for fixing the LIBOR, but will likely soon face criminal charges from both the United States and the UK. The investigation which led to the unmasking of the banksters was started by the U.S. Commodity Futures Trading Commission.