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Is Jamie Dimon hiding something?

JPMorgan’s writedowns this week were modest compared to Merrill Lynch’s, and to Citigroup’s expected toxic bundle. Why is the bank trying to raise another $6bn then?

Merrill Lynch today announced an additional $9bn in writedowns, and Citigroup is expected to announce a further $11bn in writedowns tomorrow.

JPMorgan’s $5.1bn of writedowns look positively pretty by comparison.

But if JP is sitting so sweetly, why did the bank wait until after its results release, and after the conference call, to announce plans to raise another $6bn in what Bloomberg describes as its “biggest offering of perpetual preferred stock” at a punitive fixed rate of 7.9% for 10 years?

Alphaville thinks it might just be Jamie trying to bolster his tier-one capital ratio in case of a hard landing.

But the naked capitalist points out that JPMorgan is a leading CDS dealer and therefore exposed to huge OTC derivatives positions which may yet turn horribly sour – “Think of it this way: JPM is essentially an uncapitalised, $76 trillion OTC derivatives exchange, with a $1.3 trillion asset bank appendage.”

Under this rationale, Dimon had to take on Bear Stearns simply to head off huge losses from its OTC business if Bear went under.

And it might yet face an even bigger headache if the ever expanding CDS market is hit by mass hedge fund liquidations as the crunch continues.

Is Dimon’s smile about to turn into a grimace? Or he just looking for a little something for a rainy day? Let us know what you know below.

Comments (7)

Comments
  1. The real mystery is why Dimon didn’t mention this on the conference call. Suggests he was scared of the questions that might result.

    Reginald Perrin Reply
     
  2. Dimon has said the credit crisis is ‘working itself out’. He knows that if this went live before the call he’d be forced to justify it and all that talk would be shown up for just what it is – a load of hot air.

  3. And why the hell is Dimon paying 7.9%. Suggests strange times indeed.

  4. Jamie, Jamie, Jamie. Your halo is slipping young man.

  5. Read this on Alea. “JPMC has asked the Board to permit JPMC, for a period of 18 months, to exclude from the denominator of its tier 1 leverage capital ratio any balance-sheet assets of Bear Stearns acquired by JPMC, for purposes of applying the leverage capital guidelines to the bank holding company.” What happens when those 18 months are up?
    http://www.aleablog.com/fed-loosens-capital-rules-for-jpm/

  6. Possibly building a war chest for cut price assets.

  7. Under this rationale, Dimon had to take on Bear Stearns simply to head off huge losses from its OTC business if Bear went under.

    BEAR STEARNS WOULD NEVER HAVE BEEN ALLOWED TO GO CHAPTER 11 – JPM or no JPM. if they didnt let LTCM go under, they sure as hell wouldnt let Bear go under. maybe if this new derivatives clearing house gets underway a derivatives market player could go under, but not now, the entire banking system would collapse.
    JPM were eyeing up Bear, its mortgage business and its equities business for years. the opportunity arose, they had the balance sheet, and they took it. The preferred issuance is probably to capitalize their holding company, as opposed to their investment bank chain, as bear stearns will be a subsiduary of the holding company, and must reside outside the bank chain, due to the protections for retail investors and depositors. and probably for future acquistions, similar to the WAMU deal they missed out on recently

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