Jim Armitage: With friends like the traders at JPMorgan, who needs enemies?
Not many people trust investment bankers – least of all investment bankers themselves. But at the Wall Street bank JPMorgan, there is now little doubt which type they trust the least.
Tucked away in this week’s autopsy report on the London Whale saga was an illuminating story about the psychology of the trading floors.
At the heart of the scandal was that the London Whale Bruno Iksil’s division, formally known as the Chief Investment Office, had taken catastrophically vast, and stupid, gambles on derivatives that turned out to be worth way less than its traders had thought.
Derivatives are valued on banks’ books at the price they would change hands in the market were they to be sold – the transactional value. As the Whale’s disaster unfolded, his traders became increasingly paranoid that rivals were deliberately misreporting the transactional value of their derivatives to make Mr Iksil’s losses even worse. The beasts!
But which villainous Wall Street outfit could they suspect of such Dr Evil moves? The Vampire Squid Goldman Sachs? The short-selling titan John Paulson? The pokerfaced David Einhorn?
Nope. Their main suspect of deliberately “framing” prices against them were those nasty individuals working at the Investment Bank division of . . . JPMorgan.
Guess it takes one to know one.
Kerimov caught offside in Kremlin power play
Suleiman Kerimov, the oligarch who loved Brazilian star Roberto Carlos so much he signed him to play for his far-flung club, built a billionaire’s fortune thanks reputedly to loans from Russian state-owned banks.
They largely funded his determined drive to corner a large part of the global fertilisers market through the potash company Uralkali.
Now it looks as if he is about to sell his stake under pressure from the same Kremlin that reportedly helped him buy it. But serious questions remain about how much of the proceeds will flow back to the Russian people in tax receipts.
Mr Kerimov built his position in the potash world thanks to reputed loans of $6bn (£4bn) from Russian state banks. Strong connections in the Kremlin reportedly did not hurt his rise. However, he overplayed his hand with the powers in Moscow by destroying a lucrative joint venture (for which read “cartel”) with Russia’s neighbour, Belarus.
Outside the Through the Looking Glass world of Russian business, this would have been contained as a corporate spat. But it quickly erupted into a geopolitical row when Belarus’s eccentric dictator, Alexander Lukashenko, issued an arrest warrant for Mr Kerimov and jailed his chief executive.
Minsk’s anger seems to have worried Vladimir Putin, who values a relatively stable relationship with Belarus as he attempts to persuade his other satellites to look east, not west. Mr Kerimov, Kremlin watchers say, miscalculated.
Whichever Kremlin ally buys Mr Kerimov’s shares, the tax he pays back to Russia is a matter of some intrigue. Like many oligarchs, Mr Kerimov holds political office, being a senator representing the unruly republic of Dagestan. New anti-corruption rules announced this year insisted Russian state employees be barred from holding assets outside Russia. Oligarchs had three choices: take the Roman Abramovich route and quit their political positions back in the motherland; sell or bring back to Russia their foreign assets; or exploit a get-out clause allowing them to keep their foreign wealth abroad in blind trusts.
Mr Kerimov plumped for the latter, transferring his offshore assets into his Switzerland-based Suleiman Kerimov Foundation. His 22 per cent stake in Uralkali was held in Cyprus and, according to Interfax, has been apparently been transferred to the foundation – seemingly far from the grasp of the Russian taxman. If so, that can only mean bad luck for the Lucerne-based tycoon’s constituents back in impoverished Dagestan.
UK funds’ blood money from US gun holdings
If only it didn’t come around so often. I’ve made it a habit that, every time a gun nut goes on the rampage in the US, I pen here the latest on the financial partying at the makers of the guns used to do the massacring.
The manufacturers are often partly owned by British pension and investment funds, so it seems only fair to keep their investors up to speed on how their savings are keeping morticians in business.
So, to Washington DC, where 12 people – mothers and fathers in their 40s and 50s mostly – were murdered this week as they went about their work in the Naval yards there.
It first looked as if the psycho killer’s usual weapon of choice, the assault rifle, was the guilty party. Having survived the latest White House attempts to ban such military-style monsters unscathed, gunsmiths Sturm, Ruger & Co and Smith & Wesson must have been terrified: could this finally mean a ban on the hallowed AR-15?
Then it emerged that Aaron Alexis went about his work with a shotgun. Phew. No senators or congressmen in their right minds are going to call for a ban on those toys. But if Sturm and Smith & Wesson were relieved, Cerberus Capital Management’s suits must have been firing their Bushmasters in the air with joy.
I’ll explain: Cerberus hit a wall of negative PR last Christmas when 20 children were gunned down at Sandy Hook primary school. The weapon was a Bushmaster assault rifle made at Cerberus’s Freedom gun factory.
Not enjoying the recoil, so to speak, of angry Californian teachers whose pension fund was a major investor, Cerberus promised to sell Freedom post-haste, cleansing itself of that unseemly cordite-and-death odour, so bad for the brand.
Although the firm says a sale process is ongoing with many keen bidders, there is still no deal. And given that after the Washington massacre there won’t be a public uproar about assault rifles, the pressure is off.
All the while, Cerberus has been enjoying the fruits of Freedom’s continued success. Second-quarter sales were up 51 per cent on a year ago. The dollars keep rolling in.
Now for that update on UK investors: Schroders seems delighted with the 170,000 shares in Sturm it bought in the aftermath of Sandy Hook. It holds nearly 200,000 now, worth $12m. Shell’s pension fund stuck with its $2.8m stake while Barclays topped up a touch to $1.9m. But at Smith & Wesson, maker of the AR-15 used in the Aurora cinema killings, Barclays and Schroders sold big chunks, according to June filings on Bloomberg. But don’t worry Schroder investors, your fund still holds 200,000or so, pipping Man Investments to the top spot for UK gun lovers.
Hopefully, it will be a while until the next update …
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