Thursday, March 19, 2009

Analyst: JPMorganChase Has More Overexposure to Derivatives than Citigroup

Martin Weiss is a very sharp guy and the go to guy if you need to know what is going on in the banking sector. I attended a news conference he held today, where he announced a white paper he just released “Dangerous Unintended Consequences: How The Government Understates the Dimension of the Banking Bailouts, Buyouts and Nationalizations Can Only Prolong America’s Second Great Depression and Weaken Any Subsequent Recovery.

During his press conference, Marty pointed out that the government has now spent $13 trillion trying to prop up the economy. He called it, "not enough, but too much," since he believes that the failures should be liquidated instead of propped up. "Too big to fail has failed," is the way he put it.

Marty pointed out that both JPMorganChase(JPC)and HSBC are more overexposed to default risk than Citibank. He seemed particularly concerned about JPC. "Citibank's portfolio has $2.9 trillion, almost a trillion more than AIG had at its peak. JPMorganChase has $9.2 trillion, almost five times more than AIG." Take the concern seriously. Marty predicted the demise of Bear Stearns 102 days prior to its failure, Lehman Brothers (182 days prior), Fannie Mae (eight years prior), and Citigroup (110 days prior). And, the U.S. Government Accountability Office, of all people, reported that, in the 1990s, Marty greatly outperformed Moody’s, Standard & Poor’s, A.M. Best and D&P (now Fitch) in warning of future insurance company failures. (See

Marty believes the FDIC is understating the banks in trouble, big time. The FDIC "problem list" of troubled banks includes only 252 institutions with assets of $159 billion. Marty calculates, using FDIC data, that banks and thrifts at risk of failure total 1,568 with $2.32 trillion in assets.

Marty also pointed out a hidden corner of the derivatives credit default swap market--contracts on the default of U.S Treasury bonds. Marty said that, "Quietly and without fanfare, a small but growing numbers of investors are not only thinking but doing the unthinkable, they're actually spending money on it, bidding up the premiums on Treasury bond credit default swaps to 14 times their 2007 level. This is an early warning of the next big shoe to drop in the debt crisis--serious potential damage to the credit, credibility and borrowing power of the United States Treasury."

However, Marty believes, just as I do, that the government will print all the money it needs before they default.

Note: I asked Marty for a list of banks that he ranked as the safest, he promised to send me a link on it, as soon as I have it, I'll do a post on it.


  1. How do you think Institutional Risk Analytics (Chris Whalen) compares with regard to bank ratings?

  2. Sorry, don't follow him. I've been following Marty for ages.

  3. Martins Ratings Screener

    Click the Banks and Thrifts tab.