Obviously this guy has a short position. The question is- Is JPMs derivatives position large or unusual compared to other institutions of its size and are its positions vulnerable to certain prices level either in gold, interest rates, stocks or currencies?
This report did not seriously address this question other than to say they have alot of derivatives.
I thought that the article answered that.
Richard W.
With interest rate derivatives (swaps), a series of fixed interest rate cashflows are exchanged with a counterparty for a series of cashflows that float based upon where interest rates are set in the market.
JPMorgan is a leader in this area because while the industry was growing, they had a AAA credit rating making it cheaper to do business with them, and they had (and continue to have) the best risk management team in the world.
Their derivatives position is large for a bank their size, but not the largest in the world. And this derivatives position would be unaffected by a drop in the price of their stock.
Some firms, Long term capital in particular, have used the leverage available through derivatives to over extend themselves in the market. JPMorgan does not do this. Quite the contrary. The trading mantra at JPMorgan is that all derivative trades should be delta neutral, gamma neutral, and rho positive. This means that not only should they not be effected by changes in the market, or changes in their hedge position, but should be structured so that an increase in interest rates will yield a profit to offset their additional cost of doing business. (In nearly every case, this means that a rise in interest rates brings a profit, but a drop in interest rates means that things stay the same.)They do this because like all banks, much of their open market position is credit funded.
The motive of this obvious attempt at a hatchet job escapes me, but I wouldnt be too concerned about it.
As for myself, I haven't worked there in some time but I still have a friend or two there, some of whom have found their way to high places. Without fail they are all among the most fanatically honest and respectable people in the industry. Since their ability to make a living depends upon their reputation, they have to be. I have personally seen JPMorgan staffers refuse business because they did not think the trade was in the best interests of the customer. You don't get any more respectable than that.
I'm at a buy side firm now, and I won't hesitate even a minute, to continue to do business with them.