Courtesy of Pam Martens
Jamie Dimon, Chairman and CEO of JPMorgan Chase, Testifying Before Congress on the London Whale Trading Losses at His Bank
According to the Office of the Comptroller of the Currency (OCC), the regulator of national banks, as of December 31, 2018 JPMorgan Chase Bank NA (the Federally-insured bank backstopped by U.S. taxpayers) held $2,212,311,000,000 ($2.2 trillion) in equity derivatives. Equity is another name for stock. The OCC also reported that all commercial banks in the U.S. held a total of $3.374 trillion in equity derivatives at the end of last year, meaning that for some very strange reason, JPMorgan Chase holds a 65.5 percent market share of bank trading in this derivatives market.
Those trillion dollar figures are notional amounts, meaning the face value. The OCC defines “notional” like this: “The notional amount of a derivative contract is a reference amount that determines contractual payments, but it is generally not an amount at risk. The credit risk in a derivative contract is a function of a number of variables, such as whether counterparties exchange notional principal, the volatility of the underlying market factors…, the maturity and liquidity of the contract, and the creditworthiness of the counterparty.”
According to the OCC report, JPMorgan Chase lost $644 million on its equity positions in the fourth quarter of 2018. We don’t yet know what happened in the first quarter of this year because the OCC has not yet released its report.
Not only is JPMorgan Chase Bank NA engaging in risky stock derivative trades, but according to the OCC just 31 percent of these trades are centrally cleared. The other 69 percent are what are called over-the-counter or OTC derivative trades, meaning they are “bilateral,” or secret contracts between JPMorgan Chase and a counterparty with little daylight available to Federal regulators. That also would suggest that they are highly illiquid.
At this point, we should pause for a moment to explain what a “derivative” actually is. The OCC defines it this way: “A financial contract in which the value is derived from the performance of underlying market factors, such as interest rates, currency exchange rates, commodity, credit, and equity prices.”
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