Late last week, a little-known trader at JPMorgan Chase & Co. in London, Bruno Iksil, awoke to find his life changed forever.
In an instant, Iksil had become famous as the guy who infuriated some of his bank’s counterparts so much that they complained to Bloomberg News journalists he was skewing the credit-derivatives markets with his outsized bets, one of which they said may be as large as $100 billion. Worse yet, the world learned Iksil had earned two unforgettable nicknames: (1) The London Whale, and (2) Voldemort, after the Harry Potter villain.
One sobriquet would be bad enough. But two? For a single swaps trader? This is cause for serious concern.
History has often been unkind to famous Wall Street figures with colorful nicknames. Dick Fuld, the former head of Lehman Brothers Holdings Inc., was “The Gorilla.” There was Yasuo Hamanaka at Japan’s Sumitomo Corp., known as “Mr. 5 Percent” for the share of the world’s copper market he was said to control in 1996, before his trades wound up costing his bank $2.6 billion.
More than a century ago, the financier Hetty Green, one of history’s greatest misers, was dubbed “The Witch of Wall Street.” Goldman Sachs Group Inc. is the “Vampire Squid,” while its young salesman Fabrice Tourre of Abacus fame fancied himself as “Fabulous Fab” in an e-mail. One foul-mouthed bond salesman, Tom Bernard, got tagged “The Human Piranha” in Michael Lewis’s book “Liar’s Poker,” about Salomon Brothers in the 1980s.
Things to Come
Although there are exceptions -- Green, for instance, amassed a fortune of more than $1 billion in today’s dollars -- having a clever nickname in high finance can be a sign of complicated things to come.
This brings us back to Iksil, who has sold so much credit-default protection this year his trades have moved market indexes, unidentified traders at hedge funds and rival banks said. The trades have been so large they are widening gaps between the relative value of the indexes and the average price for contracts tied to companies in those indexes. One position, perhaps as much as $100 billion, consists of contracts in an index of 121 companies called the Markit CDX North America Investment Grade Series 9, although the market participants who spoke to Bloomberg News said this probably isn’t a one-way bet.
The information available about Iksil’s trades is limited. So we really don’t know exactly what he did, much less what he’s doing at this moment. We’re not even sure how old Iksil is, only that the French-born trader, who works in JPMorgan’s chief investment office, is said to be in his late 30s.
The unknowns are what make Iksil’s trades so intriguing, of course. Was he making speculative, proprietary bets? Was he hedging other investments? And is it even possible to define the difference between speculating and hedging? At a bank the size of JPMorgan, it would seem almost anything could be made to look like a hedge if this suited the bank’s interests.
Hedges can and do backfire, sometimes spectacularly. Plus, with Iksil’s bets now the subject of worldwide fascination, they could become a target for other traders angling to figure out when he might try and unwind his holdings. There’s also the question of how someone could get out of a $100 billion position if he wanted to, in an index where trading may be inactive.
Predictably, news of Iksil’s doings rekindled debate among some politicians over the so-called Volcker rule, the portion of the Dodd-Frank Act that once was promised as a curb on too-big-to-fail banks making proprietary bets with their own money. This issue is largely moot, though.
Regulators have turned the rule into a bloated mess filled with exceptions, in dutiful response to lobbying by JPMorgan and other banks. Whenever the rule finally takes effect, it probably won’t be enforceable. Even if some parts are, by the time the regulators figure out which ones, the banking industry will have moved on to more lucrative and potentially disastrous financial innovations that the government will be clueless about.
JPMorgan’s chief executive officer, Jamie Dimon, last month wrote in a letter to shareholders that he agrees with the Volcker rule’s intent to eliminate “pure” proprietary trading. Loosely translated, what Dimon meant is that almost nothing should be banned. He will get his wish, no doubt.
While we may not know what exactly Iksil has been doing, let’s get one thing straight: He isn’t a whale. In gambling lingo, a whale is a rich guy who walks into a casino and bets a lot of his own money. Iksil is a guy who works for a big casino backed by U.S. taxpayers and bets a lot of his employer’s money at other casinos. JPMorgan is the whale, not Iksil. A more apt metaphor for him might be a remora.
As for Voldemort? Please. Iksil is an employee. He can be fired. The murderous Voldemort, so all-powerful he’s referred to as “He Who Must Not Be Named,” didn’t have a boss. If Iksil is to have an outrageous nickname, it should clearly convey that he is under the control of his master.
(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)
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