Goldman Mirrors JPMorgan Mirrors Goldman on Swap Exposure to European Debt
JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS), two of the largest derivatives dealers, posted identical gross notional amounts of credit-default swaps bought and sold on five troubled European nations.
JPMorgan purchased single-name contracts protecting $147.3 billion of debt and sold $142.4 billion related to the so-called GIIPS nations of Greece, Ireland, Italy, Portugal and Spain, the bank said in its annual filing today. Goldman Sachs disclosed the exact same figures in a filing yesterday. In both cases, the numbers were as of Dec. 31.
Banks, facing regulatory pressure to more thoroughly explain risks posed by countries at the center of Europe’s debt crisis, are beginning to provide specific gross notional figures for credit derivatives. The disclosures show the extent to which firms have insured debt from those nations, and their efforts to balance that exposure by buying protection.
“There are a nearly infinite number of possible coincidences that could occur any day of the year but don’t,” said Chris Kotowski, an analyst at Oppenheimer & Co. in New York. “Every now and then, they do.”
JPMorgan is the largest U.S. credit-derivative dealer, and Goldman Sachs is No. 3. The notional amounts represented about 7 percent of Goldman Sachs’ total credit derivatives, and 5 percent of JPMorgan’s total.
Goldman Sachs previously reported only its so-called funded exposure to the debt of those nations, excluding commitments or contingent payments such as credit-default swaps. JPMorgan had provided net figures.
Top risk managers for the two firms sat next to each other today at a panel discussion organized by a trade group in New York. David Weisbrod, vice chairman of risk management at JPMorgan, and Craig Broderick, Goldman Sachs’s chief risk officer, repeatedly agreed with each other’s statements during the discussion of new challenges in risk management at the annual convention of the Global Association of Risk Professionals. Broderick worked for Chase Manhattan Bank, now part of JPMorgan, before joining Goldman Sachs, according to the association’s convention booklet.
JPMorgan said “master netting agreements” reduced the notional amount of protection purchased to $18.5 billion and the amount sold to $13.7 billion. The fair value of the contracts after collateral and netting were $3.9 billion and $2.7 billion, respectively.
Goldman Sachs also said that “legally enforceable netting agreements” would reduce the amount of credit-default swaps purchased on the five countries to $21.1 billion and the amount sold to $16.2 billion. Those so-called notional amounts exclude collateral as well as derivatives from outside those nations that could mitigate the risk, according to the filing. Both banks are based in New York.
Citigroup Inc. (C) said the net notional amount of swaps it purchased on the GIIPS nations was $16.9 billion, and the net amount sold was $7.8 billion. It didn’t provide gross figures. Bank of America Corp. also didn’t disclose notional amounts related to those nations.
Morgan Stanley (MS), the second-largest credit derivative dealer among U.S. banks, included net notional amounts of credit- default swaps within its net inventory category, which also comprised long and short positions in debt and equity securities tied to the region.
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