Back in the ancient history of April, several news stories described in deep detail that JPM London was being banged by the movements of a large trader. The story vaporized behind the European decline and the daily cheering of the US bears. Bank stress had begun to calm when JPM came clean after the close last night. Here's a few observations.
1) Hedging huge DV01 basis risk in this arena clearly led to a "smartest guys in the room" moment. Clearly, some parties were not willing to look at the quants and say, "I have no idea what you're doing, I'd prefer if you stop."
2) Strangely, white paks were hit shortly before the announcement at a time when very little flow would go through the market. Now, who could of done that?
3) JPM having made a big play into the metals warehouse and the exposure there by TBTF Santander, the global "risk free" collateral shortage could turn into a drought. h/t @real_interloper
4) Na-bobs of negativism will jump on the "Volcker Rule" (its a rule ya' know!) . I doubt its a cure for anything.
5) The Fed can't be happy. The political environment for FX Swap lines had already decayed into a "Fed bailing out EZ with taxpayer money" mistaken narrative. JPM changes that dynamic in the dollar sourcing stress bucket. We joked yesterday that perhaps the ECB could open them up with us!
6) Expect the globe to scoff, huff, puff, denounce.....and throw more money at it.