*BREAKING* FITCH DOWNGRADES JPM to A+ From AA-

FITCH HAS JUST DOWNGRADED JP MORGAN 1 NOTCH FROM AA- TO A+, NEGATIVE WATCH

A 1 notch downgrade means JP Morgan will have to post in the range of $1-$2 billion in new collateral…on top of the $2-3 billion already reported lost on Bruno Iksil’s hedging trade gone bad.

  • Fitch views JPM’s $2 billion loss as ‘manageable’
  • Magnitude of loss and ongoing nature implies a lack of liquidity

Full release below:

Fitch Ratings-New York-11 May 2012: Fitch Ratings has downgraded JPMorgan Chase & Co.’s (JPM) Long-term Issuer Default Rating (IDR) to ‘A+’ from ‘AA-’ and its Short-term IDR to ‘F1′ from ‘F1+’. Fitch has placed all parent and subsidiary long-term ratings on Rating Watch Negative.

Fitch has also downgraded JPM’s viability rating (VR) to ‘a+’ from ‘aa-’ and placed it on Rating Watch Negative. In addition, Fitch affirmed JPM’s ’1′ support rating and ‘A’ support rating floor. A full list of rating actions follows at the end of this release.

The rating actions follow JPM’s disclosure yesterday of a $2 billion trading loss on its synthetic credit positions in its Chief Investment Office (CIO). The positions were intended to hedge JPM’s overall credit exposure, particularly during periods of credit stress.

Fitch views the size of loss as manageable. That said, the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity. It also raises questions regarding JPM’s risk appetite, risk management framework, practices and oversight; all key credit factors. Fitch believes the potential reputational risk and risk governance issues raised at JPM are no longer consistent with an ‘AA-’ rating.

Still, at the ‘A+’ level JPM’s ratings continue to reflect its dominant domestic franchise as well as its solid and growing international franchise in investment banking and commercial banking. Capital remains sound and compares well with global peers, providing the bank with sufficient cushion to absorb a material idiosyncratic loss event. Fitch believes JPM continues to be well prepared to meet the minimum standards under Basel III.

Like other global trading and universal banks (GTUBs), the complexity of JPM’s operations makes it difficult to fully assess the risk exposure. This trading loss is precisely the kind of risk factor inherent in the GTUB business model. Fitch believes JPM, like other GTUBs, is in a highly confidence sensitive business and the longer-term implications for the firm’s reputation are not yet known. As a result, Fitch believes JPM’s ratings remain at heightened risk for downgrade until the firm’s risk governance practices, appetite, oversight and reputational impact can be further reviewed.

In addition, ongoing volatility and further losses are likely to arise from these positions as the firm unwinds them, creating some uncertainty. The firm’s Value at Risk (VaR) methodology was also changed in first-quarter 2012 (1Q’12) but subsequently reverted back to the original methodology. This resulted in a near doubling of VaR to $170 million, from 4Q’11 VaR of $88 million. The variance emanated from the CIO VaR and a negative $47 million diversification benefit. Fitch believes this also highlights some problems with modeling related to this portfolio.

Resolution of the Rating Watch Negative will conclude upon a further review of how JPM has addressed what Fitch views to be risk management and oversight deficiencies that allowed such a loss to occur. Fitch will also attempt to assess the future earnings and capital impact from these exposures. Fitch will also review the potential implications for market confidence in JPMand reputational damage as a result of this loss on both its liquidity profile and counterparty and dealings.

Fitch believes the Rating Watch resolution could result in a further downgrade of one notch if the risks are not appropriately sized and addressed. The complexity and opacity of these positions may also result in lingering concerns around the firm.

A return to a Stable Outlook will be dependent upon Fitch’s ability to gain comfort with the risk management concerns, potential ongoing nature of these synthetic credit positions and volatility they may create, as well as the reputation issues raised.

Fitch has placed all of the ratings below (with the exception of the short-term and commercial paper ratings) on Rating Watch Negative.

Fitch downgrades and affirms JPMorgan’s ratings as follows:

JPMorgan Chase & Co
–Long-term IDR to ‘A+’ from ‘AA-’;
–Long-term senior debt to ‘A+’ from ‘AA-’;
–Long-term subordinated debt to ‘A’ from ‘A+’;
–Preferred stock to ‘BBB-’ from ‘BBB’;
–Short-term IDR to ‘F1′ from ‘F1+’;
–Commercial paper to ‘F1′ from ‘F1+’;
–Viability to ‘a+’ from ‘aa-’;
–Market linked securities to ‘A+-emr’ from ‘AA-emr’.

JPMorgan Chase Bank N.A.
–Long-term deposits to ‘AA-’ from ‘AA’;
–Long-term IDR to ‘A+’ from ‘AA-’;
–Long-term senior debt to ‘A+’ from ‘AA-’;
–Long-term subordinated debt to ‘A’ from ‘A+’;
–Short-term IDR to ‘F1′ from ‘F1+’;
–Short-term debt to ‘F1′ from ‘F1+’;
–Short-term deposits at `F1+’;
–Viability to ‘a+’ from ‘aa-’;
–Market linked long-term deposits to ‘AA-emr’ from ‘AAemr’;
–Market linked securities to ‘A+emr’ from ‘AA-emr’.

Chase Bank USA, N.A.
–Long-term deposits to ‘AA-’ from ‘AA’;
–Long-term IDR to ‘A+’ from ‘AA-’;
–Long-term senior debt to ‘A+’ from ‘AA-’;
–Long-term subordinated debt to ‘A’ from ‘A+’;
–Short-term IDR to ‘F1′ from ‘F1+’;
–Short-term debt to ‘F1′ from ‘F1+’;
–Short-term deposits at `F1+’;
–Viability to ‘a+’ from ‘aa-’.

Custodial Trust Co.
–Market linked long-term deposits to ‘AA-emr’ from ‘AAemr’;
–Long-term IDR to ‘A+’ from ‘AA-’;
–Short-term IDR to ‘F1′ from ‘F1+’;
–Viability to ‘a+’ from ‘aa-’.

JPMorgan Bank & Trust Company, National Association
–Long-term deposits to ‘AA-’ from ‘AA’;
–Long-term IDR to ‘A+’ from ‘AA-’;
–Short-term IDR to ‘F1′ from ‘F1+’;
–Short-term deposits at `F1+’;
–Viability to ‘a+’ from ‘aa-’.

JPMorgan Chase Bank, Dearborn
–Long-term deposits to ‘AA-’ from ‘AA’;
–Long-term IDR to ‘A+’ from ‘AA-’;
–Short-term IDR to ‘F1′ from ‘F1+’;
–Short-term deposits at `F1+’;
–Viability to ‘a+’ from ‘aa-’;

Bear Stearns Companies LLC
–Long-term IDR to ‘A+’ from ‘AA-’;
–Long-term senior debt to ‘A+’ from ‘AA-’;
–Long-term subordinated debt to ‘A’ from ‘A+’;
–Short-term IDR to ‘F1′ from ‘F1+’;
–Market linked securities to ‘A+-emr’ from ‘AA-emr’.

J.P. Morgan Securities LLC
–Long-term IDR to ‘A+’ from ‘AA-’;
–Short-term IDR to ‘F1′ from ‘F1+’.

JPMorgan Clearing Corp (formerly Bear Stearns Securities Corp)
–Long-term IDR to ‘A+’ from ‘AA-’;
–Short-term IDR to ‘F1′ from ‘F1+’.

Banc One Financial LLC
–Short-term IDR to ‘F1′ from ‘F1+’;
–Short-term debt to ‘F1′ from ‘F1+’.

Bank One Capital Trust III
Bank One Capital Trust VI
Chase Capital II
Chase Capital III
Chase Capital VI
First Chicago NBD Capital I
JPMorgan Chase Capital X through XXVIII
–Preferred stock to ‘BBB’ from ‘BBB+’.

Bank One Corp
–Long-term subordinated debt to ‘A’ from ‘A+’.

J.P.Morgan & Co., Inc.
–Long-term senior debt to ‘A+’ from ‘AA-’;
–Long-term subordinated debt to ‘A’ from ‘A+’.

Morgan Guaranty Trust Co. of New York
–Long-term senior debt to ‘A+’ from ‘AA-’.

NBD Bank, N.A. (MI)
–Long-term subordinated debt to ‘A’ from ‘A+’.

Providian National Bank
–Long-term deposits to ‘AA-’ from ‘AA’.

Washington Mutual Bank
–Long-term deposits to ‘AA-’ from ‘AA’.

Collateralized Commercial Paper Co., LLC
–Short-term debt to ‘F1′ from ‘F1+’.

The following ratings were affirmed:

JPMorgan Chase & Co.
–Support at ’1′;
–Support Floor at `A’;
–Long-term debt guaranteed by TLGP at `AAA’.

JPMorgan Chase Bank N.A.
–Support affirmed at ’1′;
–Support Floor at `A’.

Chase Bank USA, N.A.
–Support affirmed at ’1′, rating;
–Support Floor at `A’ rating.

Custodial Trust Co.
–Support at ’1′.

JPMorgan Bank & Trust Company, National Association
–Support at ’1′;
–Support Floor at `A’.

JPMorgan Chase Bank, Dearborn
–Support at ’1′;
–Support Floor at `A’.

Contact:

Primary Analyst
Joo-Yung Lee
Senior Director
+1-212-908-0560
Fitch Inc.
One State Street Plaza
New York, NY 10004

Secondary Analyst
Christopher Wolfe
Managing Director
+1-212-908-0771

Committee Chairperson
Ed Thompson
Senior Director
+1-212-908-0364

Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:
–’Master Global Financial Institutions Criteria’ (Aug. 16, 2011);
–’Securities Firms Criteria’ (Aug. 16, 2011).

Comments

  1. Wow—This is that “Friday Night” Bombshell everyone was talking about. A lot of people thought that the bombshell we heard yesterday should have been reported after hours today…but little did we know that was only the beginning. They “Completed Their Bombshell” on queue tonight! HAHAHA!

     

  2. Good gosh – even the ratings system is bullcrap. I mean – if I was a kid and my grade went from AA- to A+ .. I’d still think I was doing well.

    Why not a rating of A,B, C, D, Bankrupt.
    Seriously – even the ratings system is PC.
  3. Well everybody JPM  has been on the raido news all day. And tonight MSM TOP STORY the cats out of the bag. With all this lite shinning were are the roches going to go?

  4. …..2008 is going to look like a cake walk. Unbelievable.

    Beacon

  5. Mom? Is that you mom?  I can’t see you!

  6. it is time for the morgue to bend over & grab its ankles

    &

    see how it feels

    whats good for the goose

    is

    good for the gander

     

  7. Love It!!! Couldn’t have happened to a better bank. LMAO I’m so excited I need to go and take a pee. LMAO

  8. what i want to know is when is the SEC & CFTC going to go after the morgue

    for their SILVER manipulation

    they lost 2 billion

    oooooooooooo – gee

    that is pocket change

    compared to what the morgue has screwed

    J6P out of in the PM’s mining stocks

     

  9. Okay–I had an initial reaction that dropping this bombshell on a Friday night was typical—now let’s delve into the release:

    First—NEGATIVE WATCH–How, then, can Jamie say that his exposure to those insane synthetic derivative trades made by “The London Whale” have a chance in hell of improving the bottom line before the end of the quarter? It seems to me that more qualified people have looked at their status and have concluded with high confidence that, overall, things are going to get worse.

    Can you imagine if a company like IBM were to be put on “NEGATIVE WATCH”?—The ratings agency responsible would need to be very sure that, going forward, things are going to be worse, based on something VERY REAL.

    Second: “JPM’s operations makes it difficult to fully assess the risk exposure.
    This trading loss is precisely the kind of risk factor inherent in the
    GTUB business model. Fitch believes JPM, like other GTUBs, is in a
    highly confidence sensitive business and the
    longer-term implications
    for the firm’s reputation are not yet known.”
    –WOW, Again, I can’t imagine a company as large as JPM, entering into exposure to risk that is NOT KNOWN”—IT”S UNREAL!

    Third: “In addition, ongoing volatility and further losses are likely to arise
    from these positions as the firm unwinds them, creating some uncertainty”
    –How can they unwind them if there is almost no liquidity in this index (market) that was created in 2009 as a compilation of companies that were, at the time, rated AAA in some cases, and are, in some cases, now rated junk?—Lets, try to put this derivative thing into simple perspective—

    Let’s say that I know two doctors where one practice is doing badly and the other is doing well. I go to my neighbor and privately tell him that I’d like to bet him that Doctor 1 is going to do well in the future and the other will do lousy. I create a synthetic derivative where I short the lousy doctor and bet long that the good doctor will continue to do well.

    If the interest and insurance against this idea is good enough, my neighbor takes the other side of this trade—betting that the lousy doctor will somehow turn it around and the good doctor will run into problems, financially.

    After a few months, The good doctor runs into trouble and the bad doctor turns it around and interest rates and insurance against this derivative become more costly and I’m losing money. I go to my neighbor, admit, I’m losing and want to unwind—He’s making money and won’t close the trade.

    What do I do?…Go down the street and find someone else to take the other side of this bet?—Well, no…there’s no liquidity. So, the problem JPM and “THE WHALE OF LONDON” have is that this market for crazy synthetic derivatives is so thin that even if they admit they’re wrong and want to close trades at huge losses, there isn’t enough liquidity to get out of the trade!—HAHAHA!…They just have to sit on them until a bigger idiot will bail them out.

    Unfortunately, I think the entity that bails them is the US tax-payer. 

    Fourth: “The complexity and opacity of these positions may also result in lingering concerns around the firm.” –I don’t think anyone knows how bad things could get at this firm. And unfortunately, all the big banks have the same insane exposure to this derivative nightmare. Jamie let an “expert” get himself so far into his gambling debt at the craps table, he can’t make heads or tails of all the complicated bets–Does he have the seven covered?…NOPE!
     

  10. Jake

    the US

    taxpayer is going to be the fall guy

    when all is said & done

    the post turtle

    will make sure of that

  11. I’m guessing another round of QE?
    I wonder what they call it this time?
    I wonder how they will pay themselves out of it, with everyone watching more closely?
    The Dow barely down for such back to back bad news?
    That’s total B.S.
    Major stuff going down, markets act stable, Gold goes down?

    I remember when Oil and Gold moved in Tandem, for a long time
    and it was weird when they decoupled and moved inversely to each other,
    now they are moving together now again?

  12. Gone for 5 hours to zero my new scope (cloverleafs at 50 yards and business cards at 200 yards) and JPM goes to heck in a hand basket.   Sweet.                a good day in the neighborhood.

  13. Like other global trading and universal banks (GTUBs), the complexity of JPM’s operations makes it difficult to fully assess the risk exposure. This trading loss is precisely the kind of risk factor inherent in the GTUB business model. Fitch believes JPM, like other GTUBs, is in a highly confidence sensitive business and the longer-term implications for the firm’s reputation are not yet known. As a result, Fitch believes JPM’s ratings remain at heightened risk for downgrade until the firm’s risk governance practices, appetite, oversight and reputational impact can be further reviewed.

    Note that Fitch ADMITS it can’t properly do it’s job rate these banks.  Wouldn’t prudence then (something lacking in the financial world) suggest that they rate conservatively and upgrade as information becomes available rather than going all out from the git-go?  But I guess this might detract from how much Fitch is getting paid by these ratees.

  14. As has been said by others and myself before, the rating system is a joke… Yes they got down graded and yes they will have to put up more sticky notes as collateral but look how soon after the news broke that they announce a down grade to JPM… It has taken weeks or even months for them to act on whole countries… They all know what is going on behind the scenes… You can’t tell me that they just on a breaking news story decided within 24 hours to knock them down… There had to be inside knowledge of what was happening which means we still can’t trust what we see… Yes Dimon and the team of cranium commandos from the mourge will be getting a stern pee pee spanking during some closed door 5 star luncheon and maybe loose some short term dollars to make it look good but can we really trust what we are told? We have been lied too repeatedly up till now and I don’t see it stopping because of this…
    I do feel we will see more dominoes fall now and things will get worse but I just don’t see us getting a straight story from MSM or any investigation on this.. It sucks… What do we have to do to get the truth??     

  15. When (if) the SEC and CFTC get a much heavier involvement here, a lot of people may actually open their eyes after the long induced poison apple sleep. Another hiccup from like this one from JP and the people will wake totally and start to pull their money from JP. A bank run on them would be devastating to the entire world banking system and the FED will have no choice except to super ramp up the printing press. Chilton will have no choice pretty soon as he will have to publicly expose the manipulation as illegal and the Bernank will be instantly discredited (IMO). So, get your PM’s while you can before it all goes to pot.

    A little note. I’ve probably used 3-4 hundred packs of StaSilv 56 in my career. A coiled 1/16 inch coiled wire is inside each pack. Each pack contains soldering wire that is 56% silver combined with copper, antimony, etc. There is 1 Troy ounce in each pack. Can you say industrial use? This is a common item used by HVAC technicians, plumbers, electronics dudes, etc. That’s a lot of silver used each year. Just a bit of trivia.

    Stack away.

  16. Hay 2oz, Danno

    Danno got lost for a little while. 2oz I’ll get over to your new forum soon. just a stupid comment to test my posting, having trubles!!! 
  17. oops  timed out.  Short version.   Negative watch—-extinction level event. 

    Dimon spin speak—whistling past the graveyard.   Blythe—commission whore.  Silver Shorts—–kills evevy firm that tries to trade them

    .  $10 billion will be needed for the triple rating drop—one third of JPM capital. 

     JPM dead man walking and much larger than Lehman.  If Dick Fuld starts yapping—-run for the tall weeds.  End game haev started.  make your decisions on a personal  basis if this starts.   it will be unstoppable  Obama has a hard on for Dimon since he did not contribute to BHO campaign.

     

  18. Jamie should have stopped the fraud while he still had a chance!

  19. I hate to say it, but I don’t think JP Morgue is going anywhere.  The little visit to the White House last week to remind Obummer that it is an election year and he wouldn’t want any little skeletons to be found in those empty JP vaults..

    We are just being set up for another round of bail out money.  They need to make the Morgue look like it’s on its last legs so that the white knight Obummer can come in and save the world.

    Just my 2 cents
    PhilAZ

  20. Dead on Silver Alert. Somehow I missed your post earlier. Give a little time, we’ll see.

Speak Your Mind