Discord at Key JPMorgan Unit Is Faulted in Loss

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Ever since JPMorgan Chase
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] disclosed a multibillion-dollar trading loss this month, the central mystery has been how a bank known for its skill at risk management could err so badly.

As early as 2010, the senior banker who has been blamed for the debacle, Ina Drew, began to lose her grip on the bank’s chief investment office, according to current and former traders and Forex brokers. She had guided the bank through some of the most rugged moments of the 2008 financial crisis, earning the trust of Jamie Dimon, JPMorgan’s chief executive, in the process.

But after contracting Lyme disease in 2010, she was frequently out of the office for a critical period, when her unit was making riskier bets, and her absences allowed long-simmering internal divisions and clashing egos to come to the fore, the traders said.

The morning conference calls Ms. Drew had presided over devolved into shouting matches between her deputies in New York and London, the traders said. That discord in 2010 and 2011 contributed to the chief investment office’s losing trades in 2012, the current and former bankers said.

“The strife distracted everyone because no one could push back,” said one current trader in the office who insisted on anonymity because of the nature of the issue. “I think everything spiraled because of the personality issues.”

Mr. Dimon has described the trades as “sloppy” and “stupid,” but has not identified the specific mistakes. The trading loss, initially estimated at $2 billion but now said to equal at least $3 billion, is the most embarrassing misstep of Mr. Dimon’s seven-year tenure, and it has also strengthened the hand of regulators in Washington who are in the final stages of writing rules that could reshape the banking industry. In his radio address on Saturday,President Obama urged tighter restrictions on banks’ trading activity (according to the news agency).

• CFTC Said to Open Inquiry Into JPMorgan Loss
• Worst Still to Come? 
• JPM’s Freefall 

JPMorgan and Ms. Drew declined to comment. Mr. Dimon is due to make a presentation Monday at an investor conference in Manhattan sponsored by Deutsche Bank
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]. While JPMorgan’s stock has suffered since the disclosure of the loss, the bank’s overall health remains strong, and the company is expected to post a significant profit in the second quarter.

Ms. Drew, 55,resigned as chief investment officer last week. In 2011, she earned roughly $14 million, making her the bank’s fourth-highest-paid officer.

But when the losses were mounting in recent weeks, Ms. Drew’s command of the chief investment office was far different from what it had been during her stellar performance of 2008, according to interviews with more than a dozen current and former traders, bankers and executives at JPMorgan Chase. All insisted on anonymity because the losses were being examined by a host of regulators, as well as the Federal Bureau of Investigation.

In the midst of the financial crisis, for example, Ms. Drew attended the regular morning huddle with traders and forced them to defend positions and outline the risks they would face during the approaching trading day.

“I always thought she was coolheaded and an excellent manager,” said Petros Sabatacakis, a former senior executive at Citigroup
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]who worked with Ms. Drew at Chemical Bank.

Senior executives at JPMorgan said that her success in 2008, even as other banks were sustaining crippling losses, helped forge a sense of implicit trust between Ms. Drew and Mr. Dimon, one reason that he believed her initial assurances last month that the trades were not seriously troubling.

Ms. Drew also enjoyed the confidence of her subordinates, according to former employees. Part of her skill, they said, was her steely resolve. One former trader recalled that Ms. Drew counseled a credit trader who had a large bet in bank-preferred securities, which began to lose money during 2009. Instead of folding, Ms. Drew supported the trader who wanted to hold on, ultimately generating $1 billion in profits.

Ms. Drew’s success during the market crisis in 2008 also left the chief investment office feeling much more confident — too confident, in the eyes of some former employees there.

“When Ina was there, things ran smoothly,” one former trader there said.

But Ms. Drew’s firm hand began to weaken after she contracted Lyme disease. Her absences opened the door for tensions among her deputies to flare into the open. “Look,” one current trader added, “it is a tough place to work.”

Article source: http://www.cnbc.com//id/47489227

What They’re Worth Now

Share information used in the calculations is from the Form S-1 issued by the company unless otherwise noted.

Company market value and holders market value  is calculated using total shares outstanding multiplied by the current market price of the stock (FB).

Total shares outstanding includes A and B shares, unexercised options, and Restricted Stock Units (RSUs) as stated in the latest S-1 issued by the company.

Total shares for holders  includes A and B shares after the IPO, unexercised options, and Restricted Stock Units (RSUs) as stated in the S-1 issued by the company, unless otherwise noted.

Some shareholders have offered a portion of their holdings for sale in the IPO.   These shares are not included in their market value calculation. 

Over-allotment shares are not included in the total shares outstanding or holders shares.

Saverin footnote:
1) Shares from Form 4 dated May 17, 2012.  

Wilklevoss footnote:
2) Shares used to calculate the holder market value are estimated and are not available in the S-1 issued by Facebook.   Source: CNBC Reporting

Choe footnote:
3) Shares used to calculate the holder market value are estimated and are not available in the S-1 issued by Facebook.   Source: New York Times report from February 1, 2012

Article source: http://www.cnbc.com//id/47388424

World Leaders Vow to Combat Financial Turmoil, Back Greece

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World leaders backed keeping Greece in the euro zone on Saturday and vowed to take all steps necessary to combat financial turmoil while revitalizing their economies, which are increasingly threatened by Europe’s debt crisis.

A summit of the G8 leading industrialized nations came down solidly in favor of a push to balance European austerity – an approach long driven by German Chancellor Angela Merkel - with a dose of U.S.-style stimulus seen as vital to healing ailing euro-zone economies.

“We commit to take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses, recognizing that the right measures are not the same for each of us,” leaders said in a bold statement issued at their meeting at the Camp David presidential retreat in Maryland.

The message sent by the summit hosted by President Barack Obama reflected his own concerns that the euro-zone contagion, which threatens the future of Europe’s 17-country single currency bloc, could hurt the fragile U.S. recovery and his own re-election chances in November.

In their final economic communique, the Group of Eight leaders welcomed discussions in Europe to broaden the focus to more pro-growth remedies and said: “We reaffirm our interest in Greece remaining in the euro zone while respecting its commitments.”

It was unusual for the often-bland G8 communique to single out a relatively small nation. But fears that a political stalemate in Greece would lead to its departure from Europe’s monetary union at unknown costs to the financial system and global economic stability have spooked markets.

Spain too has roiled markets by revealing huge bad loans in its banking system as it struggles to rein in its budget while facing recession.

“It is significant that a group as weighty as the G8 backs Greece and reinforces the idea that Europe needs a strong union. It strengthens its hand,” said Marc Chandler, currency strategist at Brown Brothers Harriman.

In another move to shore up shaky global growth, the G8 leaders said they would monitor oil markets closely and stand ready to seek an increase in supplies if needed. While crude oil prices have declined by 10 percent over the past month, the threat of sanctions on Iran loom next month.

The G8 said the global economic recovery shows promising signs but “significant headwinds persist.”

CASUAL SETTING, TENSE ISSUES

The mountain cabins at Camp David where a shirt-sleeved Obama hosted the G8 leaders contrasted with recent tense meetings in European capitals about a sovereign debt crisis that just keeps getting worse.

The economic communique endorsed a recent political shift away from the budget-cutting austerity that has been championed by Merkel and British Prime Minister David Cameron as the route to prosperity.

Instead it recognized a common need to combine budgetary discipline with a growth strategy. This strengthens the hand of newly elected socialist French President Francois Hollande before a crucial European Union dinner on Wednesday to discuss growth.

The euro zone crisis took another lurch downward late last week when Spain revealed huge losses in its banking system and partially nationalized Bankia.

Cameron, after an early morning gym workout with Obama, said he detected a “growing sense of urgency that action needs to be taken” on the euro zone crisis. London relies heavily on international finance and banking instability would strike a fresh blow to an economy already in recession.

“Contingency plans need to be put in place and the strengthening of banks, governance, firewalls – all of those things need to take place very fast,” he told reporters.

European leaders seemed keen to stress that they would stand firm in protecting their banks, after news of escalating bad loans raised the specter that rescuing Spain’s banks would crash the euro zone’s fourth largest economy.

“We will do whatever is needed to guarantee the financial stability of the euro zone,” European Union President Herman Van Rompuy said, using language that ended up in the statement.

Hollande suggested using European funds to inject capital into Spain’s banks, which would mark a significant acceleration of EU rescue efforts. But there was no direct mention of Spain in the communique or any indication of action leaders would take to combat the financial stresses.

GERMANY SOFTENING ON AUSTERITY

There already were signs of a softening in Germany’s austerity stance as the meeting on the global economy began.

Germany’s largest industrial union, IG Metall, struck its biggest pay deal in 20 years early on Saturday. The 4.3 percent pay increase, more than double Germany’s inflation rate, will boost worker buying power in the euro zone’s richest nation and lift consumption. That is something the United States has urged as a means to bolster overall growth throughout the world’s second largest economic region.

In the G8 group photo outside the presidential log cabin, Obama also sought balance. He stood with the leaders of Europe’s two largest powers – France and Germany – to his right and his left respectively.

G8 leaders also raised pressure on Iran over its nuclear program, which they suspect has military objectives, by committing to a common approach. They pledged to implement sanctions fully against Tehran and indicated they would act together to lower oil prices if needed.

“Our hope is that we can resolve this issue in a peaceful fashion that respects Iran’s sovereignty and its rights in the international community, but also recognizes its responsibilities,” Obama told reporters.

The Camp David summit kicked off four days of intensive diplomacy that will test world leaders’ ability to quell unease over the threat of another financial meltdown as well as plans to wind down the unpopular war in Afghanistan.

After the Camp David talks wrap up late on Saturday, Obama will fly to his home town of Chicago where he will host a two-day NATO meeting at which the Afghanistan war will be the central topic.

Article source: http://www.cnbc.com//id/47488177

Facebook Brings the Retail Investor Back … for a Day

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Facebook
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] caused a surge in trading volume as the hype surrounding the biggest Internet IPO ever lured regular investors back to their electronic brokerages to trade shares of the ultra-popular social network — and the rest of the market, too.

Retail participation in the overall market — rather than by institutions — was 50 to 70 percent higher than the average for May, estimated Richard Repetto, an exchange and brokerage analyst with Sandler O’Neill.

A large portion of that trading was in Facebook shares alone as Repetto said a large electronic broker told him that the new IPO accounted for as much as 30 percent of the daily average revenue trades — or “DARTS” as they are called in the industry.

By comparison, the previous best IPO was GM
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], accounting for 7 percent of DARTS, according to this broker.

It will be a welcome sight for Wall Street if Facebook can keep the retail investor interested in the stock market beyond one trading day.

Even with the bull market turning three years old in March, equity mutual funds have averaged $274 million in outflows per week this year, according to Jefferies.

Shares of the social network ended the day slightly higher than the IPO price but it was the volume stats that were impressive.

About 570 million shares traded in the ticker “FB,” accounting for a fifth of the total volume at the Nasdaq.

It was that exchange’s busiest day so far this year.

For the best market insight, catch ‘Fast Money’ each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:00 ET on CNBC. Follow @CNBCMelloy on Twitter.

______________________________________________________

John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team. Click here to see his full bio.

______________________________________________________
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Article source: http://www.cnbc.com//id/47481355

Week Ahead: Europe May Rattle the Market’s Cage

Europe will keep its chokehold on financial markets in the week ahead, as investors size up Greece’s commitment to the euro zone and watch for other headlines on the debt crisis.

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“Next week is only one of the four weeks we have to wait until the Greek election. Every utterance out of Greece makes us think about their [possible] exit and how sloppy that could be,” said Art Hogan of Lazard Capital Partners.

With just a few earnings and economic reports, there will be plenty of opportunity for markets to dwell on Europe and its problems. In the past week, investors began to reassess the possibility that Greece could leave the euro zone in a messy fashion, spurring bank runs in other weak peripheral countries.

While still not viewed as highly likely, those fears helped send buyers into the bond market, driving 10-year yields to historic lows. Stocks sold off, in their worst weekly performance of the year. The Dow in the past week was down 3.5 percent to 12,369, and the SP 500 was off 4.3 percent to 1295. The Nasdaq was down 5.3 percent to 2778.

The markets are also watching the European banking sector, under review by Moody’s. Moody’s downgraded Italian and Spanish banks in the past week.

G8 leaders were to meet in Camp David over the weekend, and President Obama and leaders were to head to Chicago Sunday where NATO meets to discuss Afghanistan.

“The macro environment here is really getting very dicey and it happened quickly,” said Barry Knapp, head of equities portfolio strategy. Knapp said it’s not clear European nations are prepared to provide the policy response needed. “Could we get some headline out of the G8 over the weekend that could cause a short-term bounce? That’s possible, if not probable. What are you supposed to do with any bounce? — Sell it.”

In the past week, German Chancellor Angela Merkel and newly elected French President Francois Hollande both said Greece should stay in the euro zone. Greece’s failure to form a ruling coalition after its May 6 election has now led it to a second election in June. Polls show the radical left party is in the lead, and that party rejects austerity measures agreed to as part of the Greek bailout.

Alan Ruskin, Deutsche Bank G10 currency strategist, said some of the G8’s discussion is unlikely to be made public. “Even if there’s a very small possibility [of a Greek exit], policy makers should be drawing up contingency plans,” he said.

The euro lost about 1 percent against the dollar in the past week. The CFTC reports a record net speculative short position in the euro in the week ended Tuesday, notes Peter Boockvar, market strategist at Miller Taback.

Econorama

Existing home sales Tuesday and Thursday’s durable goods and weekly jobless claims top the week’s U.S. economic reports. German and euro zone PMI is reported Thursday, as is HSBC flash manufacturing PMI for China.

“I think that the economy has been slowing. It’s not as robust as it was; however, I would argue with disproportionate falling interest rates. Housing activity is picking up, gasoline prices are falling as we go into Memorial Day weekend. That can’t be bad. I think we have to be careful about getting too bearish,” said Richard Bernstein, CEO of Richard Bernstein Capital Management.

Bernstein said Europe’s problems are behind the decline in Treasury yields. The 10-year Thursday closed at a record low of 1.70. “We are benefiting from the rest of the world’s problems, and the dollar is strong … the world is moving to U.S. assets as they begin to reassess the risks around the world, and I think this is great for the U.S. economy longer term,” he said.

Knapp said Tuesday’s Richmond Fed survey will be important because of the mixed results of the past week’s stronger Empire State survey, and the surprising decline in the Philadelphia Fed survey. Housing is also important.

“The one story left alive in the equity market is that the housing market is recovering faster than people thought. I think the housing market is bottoming … But I don’t think it’s about to have a robust recovery,” he said.

One of the big events for the stock market this year was  Facebook’s initial public offering Friday.

Some traders said stocks had an early bid Friday because of Facebook, but that faded. Facebook shares were barely changed on the day, ending 23 cents above the $38 offer price. However, trading in the stock was marred by communications problems at the Nasdaq and the stock had a rough start, reaching a high of $45 very briefly.

Trades were still being resolved late in the day and there is likely to be more discussion about that in the coming week.

Facebook, at $18 billion, is the largest tech IPO and it attracted a great deal of retail investor interest. In fact, retail investor participation in the market Friday was 50 to 70 percent higher than the average for May, according to Sandler O’Neill’s Richard Repetto.

“It’s rather ironic there’s been massive outflows from equity mutual funds, yet individual investors think they’ve found the investment. I think this thing is tremendously overhyped. It’s not half as important as everybody makes it out to be,” Bernstein said.

Another stock in the news is JPMorgan
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], which lost 9 percent in the past week, after its admission the week earlier of a major trading loss. JPMorgan CEO Jamie Dimon faces investors at a Deutsche Bank conference Monday at 9:30 a.m.

What to Watch (All times Eastern)

Monday

Earnings: Campbell Soup, Lowe’s, Urban Outfitters, Ryanair

0515 am Atlanta Fed President Dennis Lockhart speaks in Tokyo on monetary policy

Tuesday

Earnings: AutoZone, Best Buy, Medtronic, Ralph Lauren, Vodafone, Williams-Sonoma, Cracker Barrel, DSW, Analog Devices, Dell, Petsmart, Guess, Take Two

0615 am Atlanta Fed’s Lockhart in Hong Kong on monetary policy

1000 am Existing home sales

1000 am Richmond Fed survey

0100 pm Treasury auctions $32 billion in 2-year notes

Wednesday

Earnings: Hewlett-Packard, American Eagle, Bank of Montreal, Big Lots, Hormel, Toll Brothers, NetApp, Pandora, PVH, Synopsys

1000 am New home sales

1000 am FHFA home price index

0100 pm Treasury auctions $32 billion in 5-year notes

0200 pm Minneapolis Fed President Narayana Kocherlakota in Rapid City, S.D.

Thursday

Earnings: Costco, Royal Bank of Canada, Tiffany, Toronto Dominion, Verifone

0830 am  Initial jobless claims

0830 am Durable goods

1230 pm New York Fed President William Dudley at Council on Foreign Relations

0100 pm Treasury auctions $29 billion in 7-year notes

Friday

0530 am Philadelphia Fed President Charles Plosser speaks in Germany

0955 am Consumer sentiment

Follow Patti Domm on Twitter: @pattidommQuestions?  Comments? Email us at

Article source: http://www.cnbc.com//id/47483070

China Biggest Perpetrator of Economic Spying: Pentagon

The Pentagon said on Friday it believes China spent up to $180 billion on its military buildup last year, a far higher figure than acknowledged by Beijing, and it accused “Chinese actors” of being the world’s biggest perpetrators of economic espionage.

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The Pentagon, in its annual assessment to Congress of China’s military, flagged sustained investment last year in advanced missile technologies and cyber warfare capabilities and warned that Chinese spying threatened America’s economic security.

“Chinese actors are the world’s most active and persistent perpetrators of economic espionage,” the report said.

“Chinese attempts to collect U.S. technological and economic information will continue at a high level and will represent a  growing and persistent threat to U.S. economic security.”

The report was the first by the Pentagon since President Barack Obama last year launched a policy “pivot” to reinforce U.S. influence across the Asia-Pacific, even as planned belt-tightening shrinks the size of the U.S. military in many other parts of the world.

That pivot has fanned unease in China, with some PLA officers calling it an effort to fence in their country and frustrate Beijing’s territorial claims.

China has advertised its long-term military ambitions with shows of new hardware, including its first test flight of a stealth fighter jet in early 2011 and its August launch of a fledgling aircraft carrier – a refitted former Soviet craft.

The Pentagon noted that some components of China’s first indigenously produced carrier may already be under construction. It said that carrier could achieve operational capability after 2015.

“China likely will build multiple aircraft carriers and associated support ships over the next decade,” it said.

China announced in March that 2012 outlays on the People’s Liberation Army will reach 670.3 billion yuan for 2012 (about $106 billion), an 11.2 percent increase over 2011. That follows a near-unbroken string of double-digit rises across two decades.

The Pentagon suggested that China’s 2011 figure was an underestimate, noting “poor accounting transparency and China’s still incomplete transition from a command economy.” The official Chinese figure, the Pentagon said, did not include things like foreign procurement as well as other major categories of expenditure.

“Using 2011 prices and exchange rates, (the U.S. Department of Defense) estimates China’s total military-related spending for 2011 ranges between $120 billion and $180 billion,” the Pentagon said.

In contrast, U.S. lawmakers are now debating a bill seeking $554 billion in base defense spending for the 2013 fiscal year beginning in October and $88.5 billion for the Afghan war and other overseas operations.

Article source: http://www.cnbc.com//id/47484748