JP Morgan derivative update | Fortune
I have covered here since the banking crisis the scale of ‘notional’ derivative activity in the banking economy. That last time I saw a number was Dec 2010 and world derivatives totalled $600 trillion. To place in perspective that number is 10 times world GDP. That number has grown since the banking crisis by 10%.
According to Fortune Magazine (below), the derivatives at JP Morgan account for more than 10% of all world derivatives, and might well account for a chunk if not all of the growth in notional contract amounts. Growth in all derivatives since 2009 is $43 trillion, while JP Morgan holds $ 73 trillion. We know JP Morgan have been aggressively accumulating over the last 2 years.
By far what makes JPMorgan the riskiest bank on Wall Street, and one of the most profitable, is the bank’s derivative trading book, which is far larger than any other bank in the world. JPMorgan holds derivatives contracts with a notional trading value of just over $1.6 trillion. (Update: Notional value is much, much higher: $73 trillion, but that’s just the size of the debt being insured not how much the bank might owe if the bets went bad. (h/t bbmoney)) That’s enough to wipe out the bank’s capital nearly 10 times over. Of course, JPMorgan says its derivative bets aren’t nearly that big or as risky as they appear. Factor in hedges and collateral, and the bank says its actual exposure is just $66 billion. But we have just seen how well JPMorgan’s hedges can work.