TYLER DURDEN, 30 March 2021
Unlike the devastating London Whale debacle in 2012, which was all JPMorgan eventually drawn and quartered quite theatrically before Congress (and was a clear explanation of how banks used Fed reserves to manipulate markets, something most market participants had no idea was possible), this time JPMorgan was nowhere to be found in the aftermath of the historic margin call that destroyed hedge fund Archegos. Which is may explain why JPMorgan bank analyst Kian Abouhossein admits he is quite “puzzled” by the recent fallout from the Archegos implosion (or maybe JPM simply was not a Prime Broker of the notorious Tiger cub), which however does not prevent him from trying to calculate the capital at risk from the Archegos collapse.
In a note published this morning, Kian writes after Nomura yesterday confirmed (at least) a $2Nn potential claim and fellow Japanese bank Mitsubishi UFJ Securities Holdings announcing today of another potential $300MM loss – which as the JPM strategist admits “for a likely non-material PB player is surprising to us” – JPMorgan now expects losses well beyond normal unwinding scenario for the industry: and explains that it now sees “the losses as very material in relation to lending exposure for a business that is mark-to-market and holds liquid collateral” and makes Nomura’s indication of potentially losing $2bn and press speculation of CSG $3-4bn losses “as not an unlikely outcome” according to the JPM strategist.
So why is JPM surprised?
Because as Abouhossein writes, “in normal circumstances… we would have suspected industry losses of $2.5-5bn. We now suspect losses in the range of $5-10bn.” In other words, JPM has doubled its max loss estimate to as much as $10BN, a number which could yet rise.