According to a report from the FT JPMorgan pushed more than $130bn of excess cash away from reserves in the process significantly tightening overall liquidity in the interbank market, the bulk of this money was allocated to long-dated bonds while cutting the amount of loans it holds, in what the FT dubbed was a "major shift in how the largest US bank by assets manages its enormous balance sheet."
The moves saw the bank’s bond portfolio soar by 50%, and were prompted by capital rules that treat loans as riskier than bonds. And since JPM has been aggressively returning billions of dollars to shareholders in dividends and share buybacks each year, JPMorgan has far less room than most rivals to hold riskier assets, explaining its substantially higher G-SIB surcharge.
An executive at a large institutional investors told the FT that what JPM did "is incredible", adding that "the scale of what JPMorgan is doing is mind-boggling . . . migrating out of cash into securities while loans are flat."
The dramatic change, may have catalyzed the spike in repo rates in September.
So what exactly did JPMorgan do?
The biggest US bank by assets shrank its loans portfolio by 4%, or about $40bn, year to date; at the same time as selling off mortgages, the bank has reduced the amount of cash on its balance sheet and used it to buy long-dated bonds.
In other words, to ensure that JPM's tens of billions in buybacks and dividends continue flowing smoothly and enriching the company's shareholders, Jamie Dimon may have held the entire US financial system hostage, forcing the Fed's hand to restart "Not QE."
JPM managed to get the Fed to hold the bag, so to speak, because one has to keep track of the fascinating bigger picture: in order to boost interbank funding, and to force the Fed to inject more liquidity into the system, JPM first drained reserves and hit money markets...
Source: Monday Morning Macro
... creating a mini cardiac arrest in the repo system, which in turn forced the Fed - which had no choice but to restore funding to the "reserve depleted" market - to boost its balance sheet by a whopping $250 billion in just the past 7 weeks as we noted earlier, pushing the total back over $4 trillion for the first time since QE3.
Source: www.zerohedge.com/he...-doing-mind-boggling
The moves saw the bank’s bond portfolio soar by 50%, and were prompted by capital rules that treat loans as riskier than bonds. And since JPM has been aggressively returning billions of dollars to shareholders in dividends and share buybacks each year, JPMorgan has far less room than most rivals to hold riskier assets, explaining its substantially higher G-SIB surcharge.
An executive at a large institutional investors told the FT that what JPM did "is incredible", adding that "the scale of what JPMorgan is doing is mind-boggling . . . migrating out of cash into securities while loans are flat."
The dramatic change, may have catalyzed the spike in repo rates in September.
So what exactly did JPMorgan do?
The biggest US bank by assets shrank its loans portfolio by 4%, or about $40bn, year to date; at the same time as selling off mortgages, the bank has reduced the amount of cash on its balance sheet and used it to buy long-dated bonds.
In other words, to ensure that JPM's tens of billions in buybacks and dividends continue flowing smoothly and enriching the company's shareholders, Jamie Dimon may have held the entire US financial system hostage, forcing the Fed's hand to restart "Not QE."
JPM managed to get the Fed to hold the bag, so to speak, because one has to keep track of the fascinating bigger picture: in order to boost interbank funding, and to force the Fed to inject more liquidity into the system, JPM first drained reserves and hit money markets...
Source: Monday Morning Macro
... creating a mini cardiac arrest in the repo system, which in turn forced the Fed - which had no choice but to restore funding to the "reserve depleted" market - to boost its balance sheet by a whopping $250 billion in just the past 7 weeks as we noted earlier, pushing the total back over $4 trillion for the first time since QE3.
Source: www.zerohedge.com/he...-doing-mind-boggling
