By Pam Martens and Russ Martens: September 8, 2020 ~
Last week there was a big buzz among financial media outlets regarding the Japanese conglomerate, SoftBank. According to unnamed sources who spoke to the Financial Times, over the past few months SoftBank has paid about $4 billion in premiums, buying call options on individual U.S. technology stocks. The Financial Times called SoftBank the Nasdaq Whale and said its call buying had “stoked the fevered rally in big tech stocks before a sharp pullback” at the end of last week.
A call option on an individual stock is a derivative that gives the buyer the right, but not the obligation, to purchase the actual stock at a specified price (strike price) over a specified time period.
According to the Financial Times, the call options purchased by SoftBank gave it exposure to approximately $30 billion in the stock of big tech companies.
The Wall Street Journal, again citing unnamed sources, wrote that SoftBank focused its $4 billion of call buying on tech stocks it already owned, as well as other tech names.
In a 13F filing that SoftBank made with the Securities and Exchange Commission for the period ending June 30, 2020, it indicated it owned a total of $17.5 billion of stock, including the following: $1 billion in Amazon; $475 million in Alphabet (parent of Google); $183 million in Microsoft; $189 million in Netflix; and $123 million in Tesla.
Even if you add in Softbank’s rumored $30 billion in derivative exposure to tech names, this is still pretty much chump change compared to the holdings of JPMorgan Chase – a bank that was documented in a 300-page report by the U.S. Senate’s Permanent Subcommittee on Investigations as being the “London Whale” that used hundreds of billions of dollars in bank depositors’ money to make high-risk, market-moving derivatives trades in 2012, losing $6.2 billion in those ill-fated gambles. We pointed out in our reporting at the time that the bank was also engaged in trading stocks or stock derivatives with the depositors’ money. That part of the Senate report was apparently so combustible that it had to be redacted from the eyes of the public.
The London Whale case was turned over to the FBI but no criminal charges were brought against the bank itself. The bank paid $900 million in fines to various regulators and was found to have engaged in unsafe or unsound banking practices.
According to JPMorgan Chase & Co.’s latest 13F filing for the period ending June 30, 2020, it owns $518 billion in publicly traded stocks and ETFs (Exchange Traded Funds), more than 29 times what Softbank reported on its last 13F. Among the big tech holdings of JPMorgan Chase & Co. are the following: $15.3 billion in Microsoft; $11.77 billion in Apple; $10.5 billion in Amazon; $8.5 billion in Alphabet; $3.7 billion in Facebook; and $2.3 billion in Netflix.
JPMorgan Chase & Co.’s portfolio also includes a number of ETFs that are heavily weighted in the same handful of big tech names. The bank’s portfolio includes $2.9 billion in the iShares Growth ETF, whose largest holdings are Apple, Microsoft, Amazon, Facebook, and Alphabet, making up 38 percent of the ETF as of September 4; $1.58 billion in the iShares Russell 1000 Growth ETF, whose largest holdings are also Apple, Microsoft, Amazon, Facebook and Alphabet – also making up 38 percent of the ETF.
JPMorgan Chase & Co.’s portfolio also includes $20.9 billion in the SPDR S&P 500 ETF Trust, whose largest five holdings are – wait for it – Apple, Microsoft, Amazon, Facebook and Alphabet – making up a cool 23.28 percent of the ETF which has a market value of $301.7 billion as of September 3.
The $518 billion does not appear to be the full picture of JPMorgan Chase & Co.’s stock portfolio holdings. The bank notes on its 13F filing that Russell Investments Group, Ltd. is also making a separate filing on its behalf. Try as we might, we could not find that filing on the SEC’s website.
But the real guppy versus the whale comparison comes from the minuscule $4 billion that SoftBank is rumored to have bet on big tech call options versus the documented $2.534 trillion that JPMorgan Chase is holding in equity derivatives as of March 31, 2020. The $2.534 trillion figure comes from the federal regulator of national banks, the Office of the Comptroller of the Currency (OCC).
According to the OCC data, JPMorgan Chase holds 67 percent of all equity derivatives held by all commercial banks, savings associations and trust companies in the United States. (See the second Table 10 toward the end of the OCC report here.) If that’s not a whale, we don’t know what is.
Equally notable, JPMorgan Chase’s outlandish holdings of equity derivatives have mushroomed in step with the rise in the markets. Here’s a breakdown from the OCC’s year-end reports:
JPMorgan Chase’s Equity Derivatives: Source: OCC
December 31, 2019: $2.6 trillion
December 31, 2018: $2.2 trillion
December 31, 2017: $2.115 trillion
December 31, 2016: $1.750 trillion
December 31, 2015: $1.597 trillion
December 31, 2014: $592 billion
December 31, 2013: $444 billion
December 31, 2012: $429 billion
December 31, 2011: $361 billion
December 31, 2010: $337 billion
The OCC publishes quarterly reports of its derivatives data. There was a staggering jump in equity derivatives held by JPMorgan Chase from December 31, 2014 over the next three months, ending on March 31, 2015. In that period, JPMorgan’s equity derivatives jumped by $678 billion — in one quarter. What was happening in that quarter? Wall Street banks tanked in January; domestic crude, WTI, had collapsed in half from $100 in August of 2014 to $50 in February 2015; retail store closings and bankruptcies were all over the news; and central banks around the world were worrying about depression-like deflation.
On August 31 of this year, we explained how the broader S&P 500 index would be negative for the year were it not for the outsized performance of just these six big tech names. We reported that year-to-date, through August 26, Amazon was up 81 percent; Apple was up 68.5 percent; Netflix had increased by 66 percent; Facebook had gained 45 percent; Microsoft was up by 38 percent while Alphabet came in at a 17 percent increase.
In other words, as the broader market was falling apart, these six stocks were keeping the deterioration a secret from the average American as President Trump perpetually Tweeted how well the market was doing.
The closely watched S&P 500 index is a market cap weighted index. The larger the market cap of an individual stock the heavier its influence in the direction of the index. To underscore just how far into bubble territory the big tech stocks have carried the broader market, on December 31, 2019 Apple’s market capitalization (shares outstanding times share price) was $1.288 trillion. As of Friday’s close, which included a two-day sharp pull back in tech stocks, Apple had a market cap of $2.069 trillion.
Knowing exactly what the big Wall Street banks are doing to gin up, or gin down, the market would be a lot more transparent had the Securities and Exchange Commission ever completed the Consolidated Audit Trail (CAT). That system would allow regulators to see exactly when, and by whom, trades are being made in order to quickly spot manipulations. Unfortunately, as long as both Democrat and Republican Presidents keep appointing Wall Street banks’ outside counsel to head up the SEC, the CAT, which has been stalled for decades, will remain just a distant promise.
Not having a CAT is good for big Wall Street banks like JPMorgan Chase, which operate what are, effectively, internal stock exchanges inside their banks. These platforms are called Dark Pools because the only transparency the public has is three-week old stale trading data that is lumped into a weekly data pile and disseminated on a website at Wall Street’s self-regulator, FINRA.
That stale information shows that Wall Street’s Dark Pools, including two operated by JPMorgan (JPM-X and JPB-X) traded 12.65 million shares of Apple in a total of 152,233 trades in the latest week for which data is available, the week of August 10, 2020. (SoftBank, it should be noted, does not have a Dark Pool operating in the U.S.)
Similar Dark Pool trading occurred in the shares of Alphabet, Amazon, Facebook, Microsoft, and Netflix for the week of August 10. How far back does this kind of Dark Pool trading go? Put the words “Dark Pool” inside quotes in the search box at the top of our website and prepare to be stunned.
JPMorgan Chase has one other key advantage over SoftBank. It can issue favorable ratings to the public on stocks that it wants to keep moving in an uptrend. On Friday morning, May 1, Business Insider reported that JPMorgan had put a $350 price target on the shares of Apple, giving six reasons why the stock could surge 20 percent. (Apple had closed the prior day at $293.80.)
According to MarketBeat, JPMorgan Chase has the following ratings on the big tech names that are cozily housed in its portfolio:
Apple – Overweight
Alphabet – Overweight
Amazon – Overweight
Facebook – Buy
Microsoft – Overweight
Netflix – Overweight
If all of this sounds like unseemly behavior for the largest bank in the U.S., then buckle up for the rest of the story.
In 2016, two trial lawyers, Helen Davis Chaitman and Lance Gotthoffer, wrote a book titled JPMadoff: The Unholy Alliance Between America’s Biggest Bank and America’s Biggest Crook, comparing the bank to the Gambino crime family. The lawyers wrote:
“In Chapter 4, we compared JPMC to the Gambino crime family to demonstrate the many areas in which these two organizations had the same goals and strategies. In fact, the most significant difference between JPMC and the Gambino Crime Family is the way the government treats them. While Congress made it a national priority to eradicate organized crime, there is an appalling lack of appetite in Washington to decriminalize Wall Street. Congress and the executive branch of the government seem determined to protect Wall Street criminals, which simply assures their proliferation.”
Since 2013, JPMorgan Chase has been under at least four criminal investigations by the U.S. Department of Justice. The first investigation pertained to the London Whale matter described above.
In 2014, JPMorgan Chase was charged with two criminal felony counts for its involvement with Ponzi mastermind, Bernie Madoff. The bank looked the other way for decades at signs of money laundering in the Madoff account. The bank pleaded guilty to both felony counts.
In 2015, the Justice Department brought another criminal felony count against the bank, this time for rigging foreign exchange markets. The bank again pleaded guilty along with other banks.
On September 16 of last year, the Justice Department indicted two current and one former precious metal traders at JPMorgan Chase on Racketeer Influenced and Corrupt Organizations Act (RICO) charges – a statute typically reserved for members of organized crime. The traders were charged with running a racketeering enterprise out of the precious metals trading desk at JPMorgan Chase. In an SEC filing, JPMorgan Chase has indicated that the bank itself remains under a criminal probe in the matter.
Throughout all of these criminal investigations and felony counts, Jamie Dimon has been allowed by the bank’s Board of Directors to continue to serve as Chairman and CEO, suggesting to many Wall Street watchers that the criminal activity is a feature, not a bug.