JPMorgan, HSBC and the trillion-dollar game


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The Independent Online

Outlook So, whose fat finger at JPMorgan pressed the button on the world’s biggest bank’s profits too early yesterday morning?

There the world’s analysts and investors were, thinking they had hours to go before Jamie Dimon’s banking behemoth’s profits came out, when Bang! There they were, splashed all over the City’s trading screens.

Perhaps the unfortunate chap – for it was probably a man – gave an involuntary jerk while scrolling through data in the US on how much exposure JPMorgan has to the derivatives market. The number, to  the uninitiated, does tend to startle, so brace yourself.

The notional value of JPMorgan’s US derivatives is $68,100,000,000,000. That’s $68.1 trillion. More than five times the entire US GDP.


HSBC, according to Washington’s Office of the Comptroller of the Currency, has $5trn of US derivatives exposure. That’s twice the size of the UK’s GDP, and HSBC’s not even American.

The figure is notional, and the banks argue that their exposure is largely hedged out. In other words, for every dollar bet one way, they take a dollar bet on the other side.

But, as we learned from Lehman Brothers, hedges aren’t worth so much when the person on the other side of the trade goes belly up. Even if that doesn’t happen, surely these are five trillion reasons why HSBC’s directors must be praying their derivatives teams don’t muck up their calculations, particularly now they’re criminally liable for irresponsible screw-ups.

I guess the two  who have decided to quit as non-execs will be sleeping more soundly soon.