JPMorgan Joins Goldman Keeping Italy Derivatives Risk in Dark

JPMorgan Joins Goldman Keeping Italy Derivatives Risk in Dark
Bloomberg/Businessweek, November 16, 2011
Posted: 2011-11-22 10:05:38
http://news.businessweek.com/article.asp?documentKey=1376-LURLN51A1I4K01-4BQL...

JPMorgan Chase & Co. and Goldman Sachs Group Inc., among the world's biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally. Just don't ask them how much of that was issued by Greece, Italy, Ireland, Portugal and Spain, known as the GIIPS. As concerns mount that those countries may not be creditworthy, investors are being kept in the dark about how much risk U.S. banks face from a default. Firms including Goldman Sachs and JPMorgan don't provide a full picture of potential losses and gains in such a scenario, giving only net numbers or excluding some derivatives altogether. Goldman Sachs discloses only what it calls “funded” exposure to GIIPS debt -- $4.16 billion before hedges and $2.46 billion after, as of Sept. 30. Those amounts exclude commitments or contingent payments, such as credit-default swaps. JPMorgan said ... its net exposure was no more than $1.5 billion, with a portion coming from debt and equity securities. The company didn't disclose gross numbers or how much of the $1.5 billion came from swaps, leaving investors wondering whether the notional value of CDS sold could be as high as $150 billion.

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