We have reported that Credit Suisse is not revealing the real amount of losses incurred in the failures of Greensill and Archegos; finally, Credit Suisse Group AG announced it will take a CHF4.4 billion ($4.7 billion) writedown tied to the implosion of Archegos and replace more than half a dozen executives today.
But also, JPMorgan Chase is not revealing losses which, especially in view of its gigantic exposure to equity derivatives, should be a primary source of concern, as Pam and Russ Martens reported April 5 in their “Wall Street on Parade” blog.
According to the Office of the Comptroller of the Currency’s (OCC) quarterly report, JPMorgan Chase has a $2.65 trillion exposure in notional equity (stocks) derivatives. This is 63% of the total exposure of federally-insured banks in equity derivatives ($4.197 trillion). Furthermore, 72% of the JP Morgan Chase exposure is to over-the-counter; i.e., bilateral contracts which are not controlled by regulators. This means, write the Martens, that it is not known if a counterparty “has also obtained leverage under similar contracts at other Wall Street banks and is at risk of blowing up the whole of Wall Street if it implodes. (Think Citigroup, AIG and Lehman Brothers in 2008.)”
At least one current case is known, in which JPMorgan Chase held 23.9 million shares of Discovery Inc. common stock – one of the key stock positions that collapsed in price in late March and helped to bring down the Archegos hedge fund. According to press reports, Archegos likely owned exposure to Discovery Inc. via an equity derivatives contract with a major Wall Street bank.
Underscoring the utter failure of the Dodd-Frank so-called financial reform, “at the height of the financial crisis in the fourth quarter of 2008, equity derivative contracts held by federally insured banks totaled $2.2 trillion, versus $4.197 trillion today.”
