J.P. Morgan’s big bet U.S. bank bets against itself and winds up making money?

Discussion in 'Stock Market' started by hvactec, Oct 13, 2011.

  1. hvactec
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    hvactec VIP Member

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    NEW YORK (MarketWatch) — The post-financial crisis Wall Street is doing one thing right: it’s betting against itself.

    J.P. Morgan Chase & Co. JPM became the latest too-big-to-fail bank to take advantage of an interesting trade: the bank hedges the spread on its own debt. When investors bid up the yield — an indicator that they think the bank won’t pay — J.P. Morgan makes money.

    Hey, it doesn’t have to make sense, it’s Wall Street.

    The end result was slightly better-than-expected but lackluster profit of $4.26 billion, for the nation’s second-biggest bank by assets. The bank reported $1.9 billion in revenue from the bets against itself — the net income from the move wasn’t immediately available.

    But analysts suggest the move goosed earnings by as much as a nickel per share. At minimum the hedge added a penny or two a share to per-share earnings and, thus, helped the bank come closer to the Street’s expectations.

    (As readers have pointed out, J.P. Morgan says this is an accounting measure, not a trade. But that doesn’t explain entirely why you don’t see all banks reporting such huge swings when their debt prices are moving too. And a lack of transparency in bank financial statements makes it difficult to gauge how these numbers can be calculated industry-wide.)

    read more J.P. Morgan
     
  2. editec
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    editec Mr. Forgot-it-All

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    I'd really need to see the numbers and also have somebody who understands the move explain it to me, too.

    In theory, I suppose I get it, but in actual practice, I don't.
     

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