A last minute change in a software industry group’s meeting has raised questions about whether famed and infamous tech stock analyst and Silicon Alley Insider founder Henry Blodget may have a highly placed enemy among the traders at JP Morgan.

Shortly after noon today, the New York Software Industry Association changed the location of its monthly meeting from JP Morgan’s headquarters at 270 Park Avenue to 277 Park Avenue, a building that is also occupied by JP Morgan and is directly across the street. An email from the NYSIA said the meeting was being moved “due to a flood at the JPMorgan HQ at 270 Park.” But a JP Morgan spokesperson denies that there has been a flood at the building. Others at JP Morgan also said that they hadn’t heard anything about a flood.

So if the flood hadn’t occurred, why was the meeting being moved? JP Morgan Chase didn’t offer any further comment on the subject, and NYSIA did not immediately return our call. But some of the emails recipients have begun to speculate that the meeting may have been moved because Blodget, who was accused of securities fraud in connection with his stock recommendations in the 1990s and was scheduled to speak at the monthly meeting, could be persona non grata at 270 Park Avenue.

“I'd wonder if maybe some high-up didn't want Blodget around,” a person familiar with the situation told DealBreaker.

The meeting has been moved from one JP Morgan office to another, which might imply that it is a very particular group or person within JP Morgan who has declared the premises off-limits to Blodget. Although a variety of units within JP Morgan Chase are scattered throughout it’s various Park Avenue offices, the 270 Park is home to a large number of its traders while 277 Park is home to many investment bankers. So does some high level trader have a problem with Henry Blodget?

Our research couldn't produce a credible account of who might be feuding to Blodget or why. Many in the securities industry, however, still resent what they see at Blodget's role in besmirching their business. Blodget's first book, The Wall Street Self-Defense Manual, did not paint Wall Street in a particularly flattering hue.

Neither Henry Blodget nor JP Morgan Chase could be reached for comment on this important question irresponsible speculation.

Bear Stearns has more than $1 billion of short positions on subprime, up $400 million from the end of November, Bloomberg reports. Of course, since Bear Stearns got the subprime trade so wildly wrong last year, people are already wondering if this might be a signal that it is time to go long subrime.

Over at The Big Picture, Barry Ritzholz writes, “While I do not expect us to be done with the subprime slime yet, I do get a ‘Is this a bottom indicator?’ sense from Bear on this.”

JPMorgan Chase, which emerged relatively unscathed from the credit market debacle, is apparently taking the opposite position. Yesterday Jamie Dimon was reported to have said that the bank plans to expand its role in the subprime mortgage business. Goldman is also rumored to have reversed it’s position on subprime, taking a net long position.

Bear Stearns Is `Short' Subprime Mortgages $1 Billion [Bloomberg]

Yesterday we heard two discordant voices on the possibility of the monolines getting downgraded. Jamie Dimon, the chief executive of JPMorgan Chase, said that he does not think downgrades of the insurers would be “a big deal.” Deutsche Bank chief Josef Ackerman, however, described the potential downgrades as “a tsunami-like event comparable to subprime.”

So who is right? Well, maybe both chiefs are. As Yves Smith has explained, the European banks were major buyers of CDOs and RMBS. Operating under Basel II, which links reserve requirements to the riskiness of a bank’s investments, the Euro banks were able to treat triple A paper as basically risk free investments they could hold without impacting their reserve requirements. But a downgrade of the insurance on this paper could result in the banks having to bolster their reserves, possibly worsening the credit crunch or requiring a firesale of the CDOs

“A downgrade to AA increases the reserve requirements markedly, and CDOs are generally downgraded more than a mere grade or two when they fall (I wish I could be more crisp here, but Basel II makes matters more complicated). Thus a loss of the bond guarantor AAA has a quick and nasty impact on bank capital adequacy,” Smith writes.

Which is to say, because Basel II requires banks either to hold highly rated (and, on paper at least, less risky) portfolios, or to hold high levels of capital in reserve, the banks could be forced to slow lending in order to accumulate capital, go hunting for additional capital injections or sell off their now risky CDO portfolios.

In the US banks had less incentive to invest in highly rated paper because they have been required to hold the same amount of capital against AAA-rated paper as they do against BBB-rated paper. This is the most likely explanation for why the European banks are more worried about a downgrade of the monolines than their US counterparts.

Deutsche Bank CEO: Bond Insurer Downgrade Will Create Debt " Tsunami" [Naked Capitalism]

In the latest round of bonus wipe-outs, it seems the JP Morgan’s structured credit group is feeling the pain of the credit crunch in its bonus numbers this year. Nearly every member of the small group will see it’s bonuses decline this year as compared to last year, with the total year end incentive pay for the group declining by more than 40%, according to information obtained by DealBreaker. While salaries for the group were slightly higher this year than last, the year end incentive pay numbers are dramatically lower, meaning that nearly every member of the team will receive less total compensation this year. (Two lucky souls, who are not among the top paid members of the structured credit group, are receiving more this year than last year.)

Keep in mind that these compensation numbers are provided by readers. We want more! Please email us your bonus information or just the latest bonus rumors! Send it to tips@dealbreaker.com. JP Morgan would not comment on compensation numbers.

JPMorgan has named Barry Zubrow chief risk officer, the bank announced today. It's a job no one's done in almost a year, since Don Wilson retired, which would be hilarious if we were talking about Merrill or any of the other shit for brains banks on the street, but we're not. I guess the only funny thing to say is that the new guy's name reminds me of Barry Zuckercorn, who I am more or less dying to run a pic of with this post but won't, because I see things to their completion. Speaking of people whose faces I'm jumping out of my skin to put on the site, Bar was an adviser to Jon Corzine when the big guy worked at Goldman Sachs. That wasn't an attempt to inject more hilarity into this racket, just a bit of info that warms my heart of stone, and and the game-winning answer to tomorrow's trivia night. (You and your teammates can thank me later.)
JPMorgan Appoints Barry Zubrow as Chief Risk Officer [Bloomberg]

We’re back on the Amaranth beat this morning, and as long-time readers know, once we get our jaws around something, it takes awhile for us to let it go. After writing a bit about Amaranth’s lawsuit against JP Morgan this morning, we decided to take another look at an item published on the suit by BreakingViews, a subscription-only financial news site. It’s written as if it’s uncovering a new strategic mistake by Amaranth but we can squint our eyes a little bit and see it as a bold attack on JP Morgan.

The thrust of the BreakingView’s piece was that Amaranth had blundered by using JP Morgan as its principal broker.

“In the wake of the 1998 near-collapse of hedge fund Long-Term Capital Management, many funds that used only one prime broker found those banks pulled their credit lines, forcing the funds out of business,” Breaking Views explains. “It’s now standard practice to use several prime brokers in the hope of avoiding such a fate, and to ensure no one institution can see a fund’s entire trading strategy. Amaranth itself had a dozen prime broker relationships. But it put the bulk of its trades for its main energy strategy through only one.”

Relying too heavily on JP Morgan may well have been a mistake on Amaranth’s part. But we expect that’s not an argument that JP Morgan’s prime brokerage business would like to hear made too loudly. After all, they hardly market themselves to clients with the warning: don’t give us too much business or we’ll hold you hostage and capitalize on knowledge of your strategies. But that’s exactly the danger Breaking Views is saying Amaranth ought to have recognized.

Double whammy [BreakingViews; subscription required]

We noted in yesterday’s Opening Bell that Amaranth had filed a lawsuit against JP Morgan, claiming the bank undermined its efforts to stave off collapse. We’re late to the details of the lawsuit because we were overtaken by events yesterday but we’ve now had a chance to review the lawsuit.

Amaranth’s main claim is that JP Morgan interfered with Amaranth’s negotiations with Goldman Sachs and Citidel, forcing Amaranth to cut a more expensive deal with JP Morgan. According to Amaranth’s lawsuit, Goldman had agreed to take over its money-losing positions in the natural gas market for a $1.85 billion payment from Amaranth. But JP Morgan, which as acting as the hedge fund’s clearing broker, refused to execute the transaction and Goldman walked. The suit also claims that Citadel initially to assume the positions $1.85 billion but the JP Morgan executives talked Citadel out of it, according the lawsuit.

With nowhere else to turn, Amaranth ended up selling its positions to JP Morgan—which took them over in exchange for a $2.5 billion payment.

JP Morgan is denying any wrong doing, of course, and calls the lawsuit “baseless.” But there have long been questions about the many roles JP Morgan played in the collapse of Amaranth. At the very least, JP Morgan’s role as Amaranth’s broker gave it insider knowledge of Amaranth’s trading strategies—which may have allowed its traders better access to information than some of the outside bidders. In the months after Amaranth’s collapse, several top energy traders were left the bank under somewhat murky circumstances. And from what we know about lawsuits, this may well be just the start of things. Amaranth could use this lawsuit to start a discovery process that would include depositions of JP Morgan executives and review of internal documents in hopes of uncovering even broader wrong-doing.

Amaranth’s Dream-Team Law Firm: Beck, Webb & Boies [LawBlog]
Amaranth's lawsuit [Wall Street Journal]
Amaranth's letter to investors regarding the lawsuit [Wall Street Journal]
Amaranth Sues JPMorgan for Disrupting Transactions [Bloomberg]

The "worst year ever" for layoffs in finance just got a little bit worse. This morning JP Morgan cut a number of bankers in its loan structuring group, according to a source at the bank. The cuts are said to have hit “expensive people” hardest: three out of four vice-presidents are said to be gone and at least two associates were let go. The most junior employees, the analysts, have “not yet” been let go.

Although the number of jobs lost is not high in absolute terms, they amount to between ten and twenty percent of the large loan structuring group, the source says. This would put the number at the high end of JP Morgan’s claim that it planned to cut "less than 10 percent" of its fixed-income division .

There have also been cuts in the commercial mortgage backed securities conduit origination group and the underwriting group, the source reports. As with many of the recent cuts on Wall Street, these have hit in operations closely connected to the weakest areas of the debt market.

JP Morgan could not immediately be reached for comment on the layoffs.

Almost lost among the widespread relief that JP Morgan Chase didn't suffer a Citigroup or Bank of America like third quarter was the poor performance of the bank's commodities trading operations.

It's hard to believe, but it was just last year that Jamie Dimon was telling analysts that bulking up its commodities and asset-backed securities trading would diversify the banks trading business and smooth out volatility. In March of this year, JP Morgan's co-head of investment banking, William Winters, was telling investors that the bank expected energy trading to add somewhere between $100 million and $160 million in annual earnings in 2007. As late as June, JP Morgan was announcing plans the expand its commodity-trading staff by more than 30 percent, or 40 more people.

The plan hasn't quite worked out, and now might be a good time to ask what happened. Last year, the plan seemed to be working. The bank scored a windfall by scooping up the assets of Amaranth and then flipping them to Citadel. But shortly afterwards it lost several top commodities traders.

Parker Drew, who was recruited in 2005 to run the gas trading business after his own hedge fund folded, left the bank at the end of 2006. George Taylor, who ran the bank's energy business, left in May 2007, and shortly after words Trevor Woods, who had replaced Drew, left. Three others also followed Taylor out the door.

At the time of these high level departures, there was a lot of speculation that they were connected to the bank's role in the collapse of Amaranth. JP Morgan’s was the clearing firm for energy traders at Amaranth, and it's margin calls reportedly helped bring the hedge fund down. When the bank then bought Amaranth's positions as it struggled to meet margin calls and return money to investors, many raised an eyebrow at how the bank seemed to be profiting from the troubles of its client. There was speculation that the bank may have decided that some of its traders were on too many sides of Amaranth's collapse.

This was hardly an undisputed position, however. The bank said the departures had nothing to do with Amaranth. Others say the traders left because they were unhappy with their compensation following the massive profits the desk made for the bank in 2006.

In June, the bank hired Foster Smith from Deutsche Bank to head U.S. power and natural-gas trading. Deutsche was tied with JP Morgan as the fifth largest energy trading bank in 2006. It's clear that the energy trading operation's performance has been a huge disappointment for the bank, and that Smith seems to have stepped into a mess. We haven't found solid numbers on the energy trading performance, but JP Morgan describes it's commodities trading performance—a broader category—as "weak." That's still not much solid guidance about what went wrong but it's a starting place.

(Just kidding about that whole bribing o’ analysts thing but with everyone—including Can’t Do Anything Right Citigroup—“beating” analysts’ “expectations,” doesn’t seem so crazy, does it? You’d be surprised how far a free dinner at the Hawaiian Tropic Zone will get you with an analyst at UBS AG. Lloyd Blankfein knows what we’re talking about.) Anyway, JP Morgan’s third-quarter net income rose 2.3 percent to $3.4 billion (97 cents/share), up from last year’s $3.3 billion (92 cents/share). Analysts had previously forecast earnings at 90 cents a share. This was exciting, because it made the $1.64 billion in write-downs on leveraged loans and collateralized debt obligations (which caused investment banking profits to fall 70 percent to $296 million) not seem as bad. With the exception of Goldman, JP Morgan handily won the Q3 pissing contest, with Merrill Lynch expecting to lose tons of money in the quarter on account of $5.5 billion in write-downs, and Citigroup’s triumph over analysts’ expectations earlier this week, which saw the behemoth posting a 57 percent decline on fixed-income losses. Though, to curb JPM’s enthusiasm only slightly, one might note that Citigroup has been on the receiving end of a golden shower, and pretty much drowning in it, for some time now. Still, unworthy an adversary as the C might be, it’s nice to see Jamie Dimon wiping the floor with the firm that pushed him out the door instead of naming him CEO, as Deal Journal notes this morning. Also, Meg McMullen, chief of New England Research & Management called Jamie Dimon “a smart cookie,” and, to be honest for a sec? We kind of dig the soccer mom-ness of it all. Like she's the antidote to our golden shower or something.

JPMorgan Third-Quarter Profit Rises, Beats Estimates [Bloomberg]
Dimon to Chuck Prince: Watch and Learn [Deal Journal]
JPMorgan Profit Rises, Despite Writedowns [CNBC]

In anticipation of a $2 billion write-down, JPMorgan has apparently notified staff that many jobs in the investment banking division will cease to exist, mostly those involving asset-backed securities and collateralized debt obligations. Did Jamie Dimon recently sit you down for an awkward conversation, re: your services no longer being required? What was the severance package like? Share your story today.

JPMorgan Cuts Investment Banking Jobs [CNBC]

The rumor about Syndicated Leveraged Finance analysts at JPMorgan, currently in training, being rounded up and told “there will be people leaving this group” has been given not necessarily legs but perhaps (very small) feet. While out for sushi last evening, our dinner companion received an email that read:

I won’t send this to her directly but since I know you’re out to dinner with BL, feel free to pass along that I’ve heard the same rumor about the SLF guys. Good, I say, less JPM dicks at Snafu when I get my drink on at five. Don’t put my name on that. Describe me only as being “in the know” and “an employee of Barclays.”

And another, less crazy tipster writes today:

Confirmed JPM analysts rumor, though I’ve heard the senior guys are also planning on cutting non-first year analysts.

Want to get something off your chest pertaining to Jamie Dimon's toy soldiers but feeling similarly gripped by paranoia? Shake it off and let us know.

We hear Syndicated Leveraged Finance analysts at JPM, currently in training, were rounded up yesterday and told that “there will be people leaving this group.” No mention of how or when the cuts will come. Heard anything similarly vague and sinister? Let us know.

Here's JPMorgan's latest brilliant propaganda video, which you can watch here. A walkthrough:

The video lets you know right from the start that “Elena is participating in JPMorgan’s Investment Bank 2007 Global Training Program.” You know Elena is still in training because she is still smiling. Elena is shown looking at slides, one of which has the heading “About our culture” and a subheading “PLAY” (and a disclaimer “may not be an actual slide”). Of course, that section of the training presentation is empty, and the video quickly moves on.

Some more text flashes on the screen - “Employees receive rigorous technical training and learn about JPMorgan’s culture,” as demonstrated by a still of a bunch of people taking out books from JPMorgan bags (the extreme biodiversity in the firm represented by the fact that one of them is bald), then a still of a blood orgy in the TMT group.

Elena complains that you learn about a bunch of different asset classes that have nothing to do with your future job, and that it’s difficult to get to know anyone because JPMorgan is always switching the seat assignments in the room.

Elena laments that it was also difficult to get to know anyone at the Outward Bound training offsite, because everyone had to climb these stupid ropes and row down a body of water with large blocks of wood.

Judging by what you just saw, JPMorgan admits that it has a shitty training program, but promises that by the time you sign up, it will be markedly better. That’s why the firm is proud to state that Vault voted JPMorgan the best training program out of all Investment & Commercial Banks for 2008. In the future, JPMorgan will be better. It swears.

Always one to top itself, JPMorgan saved the best for last. The last shot of the video is a black screen with an arrow pointing to the right and the phrase “This is where you need to be.” By “this,” JPMorgan either means “in total hopeless and all-encompassing darkness,” or, slightly to the right at UBS at 299 Park Ave.

Inside JPMorgan’s Global Training Program [Bankers Ball]

You know how you wanted that banking job this year? Well you can have it, in a couple years. JPMorgan is all for extending you a rather nebulous, oft-revoked offer as long as you participate in Teach for America, at least until the market turns. JPMorgan still gets to say it hired a full crop of analysts and that it supports the less financially rewarding interests of its employees.

In this case, those who can’t bank, teach. You still get some hush money – which is what the banks used to do anyway to get analysts to take a hike for a year. Unfortunately, using the cash to go on a far Eastern sex odyssey isn't viewed as favorably.

We personally think the program is a great idea, even if is a transparent attempt to avoid outright layoffs or steep hiring cuts. Budding bankers should go out and do something relatively selfless before they completely sell out, and if the effort gets more (presumably) smart individuals into programs like Teach for America, good for it.

Of course, we think it’d be a great idea if there would be a teaching program similar to R.O.T.C. where you could agree to teach for a number of years in a dodgy public shcool and get a portion of your undergraduate education paid for. Many grad schools already have these programs if you avoid going corporate for a couple of years (you can get some of med and law school paid for at least).

Sure the terrorists would win and fewer people would voluntarily sign up to get shot at in arid climates, but we could make a sequel to Dangerous Minds. If nothing else, we can finally start teaching the kiddies the difference between Muslim factions so they can grow up to run a half-competent state department.

That being said, when you have a completely bogus chart that doesn't take into account a bonus, bankers are just like everybody else (not even richer), so maybe we should have a Bank for America program. Entry-level salaries, from the Teach for America website:

Teach For America [JPMorgan]

Anyone else catch the article from today’s Journal about the invasion of instant messenger in the workplace? It was in a new pull-out section called "We think you’re dumb. And considering that this is a newspaper, and you can’t leave comments, you’re really in no position to prove us wrong."

Ohbabyitsbess: hey…when you’re back from your abs class, I have a ?

UKKeith14: yo, I’m here, took the early morning one, my obliques are BURNING

Ohbabyitsbess: cool, you can eat without punishing yourself today! Anygay…my ? is this—when you were at JP Morgan, did you use IM much?

Ohbabyitsbess: like, as in, instant messenger? IM?

UKKeith14: que?

Ohbabyitsbess: what we’re doing right now…?

UKKeith14: what’s instant messenger?

Ohbabyitbess: Instant-messaging programs allow users to organize contacts into "buddy lists" and see who is online and available to chat at any given moment, world-wide. With most IM programs, users can start real-time conversations with one or more contacts, including multiple participants simultaneously. Sending a message opens up small windows on the participants' screens where users can type their chats. Most programs also offer file-sharing, voice and video features. IM can be used on computers and on wireless devices like cellphones. Many employees use popular consumer-level IM applications, such as AOL Instant Messenger and Yahoo Messenger.

UKKeith14: I’m not following...wait, let me grab a protein shake

Ohbabyitsbess: ok...say you had a bar chart that was the wrong color scheme and needed to make things right. if you had to rely on email and phone to fix the problem, it would've taken several weeks, as opposed to just IMing your associate and getting R'd real time instead of going back and forth with mark-ups, and you could rectify things w/in the hour.

UKKeith14: oh. we had an in-house program to do that.

Ohbabyitsbess: ok but if you didn't. you could just do it on IM

UKKeith14: what's IM

Ohbabyitsbess: what we're talking on right now

UKKeith14: what are we talking on right now

Ohbabyitsbess: Instant-messaging programs allow users to organize contacts into "buddy lists" and see who is online and available to chat at any given moment, world-wide. With most IM programs, users can start real-time conversations with one or more contacts, including multiple participants simultaneously. Sending a message opens up small windows on the participants' screens where users can type their chats. Most programs also offer file-sharing, voice and video features. IM can be used on computers and on wireless devices like cellphones. Many employees use popular consumer-level IM applications, such as AOL Instant Messenger and Yahoo Messenger.

UKKeith14: ok, but what's the diff between email and IM?

Ohbabyitsbess: Unlike email, instant messaging offers "presence" -- a snapshot of which colleagues are available at a given moment, world-wide. Together with allied Internet technologies such as blogs and wikis, it is "changing the way people collaborate," says Andrew McAfee, an associate professor at Harvard Business School. Companies "increasingly react to situations and problems on the fly, not solely by hierarchy," he says.

Jfcarney has invited you to Thirty, Flirty and Dirty

Jfcarney: guys

Jfcarney: GUYS

Jfcarney: I’ve brought you here to discuss 2 things- 1. Lindsay Lohan’s second DUI and b. what I believe will be today’s answer to the Crash of ’29. I’m about to move into my safe zone where I’ve stock piled bottles of water, but, unfortunately, don’t get much wireless. So this is goodbye for now, possibly forever.

Instant Messaging Invades the Office [WSJ]

You could argue that there’s a lot JP Morgan’s done in the last few years to grind people’s gears (merged with Chase Manhattan, single-handedly perpetuated the false iPhone Nano rumors, purloined Keith Hahn’s youth and ability to open up and trust another human being) but it all pales in comparison to the bank’s declaration that it will erect a $2 billion dresser with one of its drawer left open at WTC5. James S. Russell, Bloomberg’s Senior Hideous Eyesore Correspondent goes off the deep end today re: the proposed building.

Another bank skates by without an earnings surprise due to subprime credit losses. Representing JPMorgan's "second consecutive big beat" of Wall Street estimates, the bank posted a 20% gain on net income in Q2 to $4.2 billion, beating estimates by 10%. Quarterly revenue increased 25% over last year to $18.9 billion.

Surges in investment banking, asset management and private equity drove the quarterly gains. Investment banking experienced a revenue gain of 34% to $5.8 billion and a net income gain of 41% to $1.2 billion. Asset management saw a 32% jump in revenue to $2.1 billion and a 44% jump in net income to $0.5 billion. Private equity gains more than doubled from $0.5 billion to $1.3 billion.

JPMorgan's retail bank was hurt by weakness in home equity lending and saw an earnings dip of 10% on a revenue gain of 15%. The credit-card arm was similarly impacted, losing 13% in net income on a 1% revenue gain.

Shares of JPMorgan (NYSE: JPM) are down over 2% so far in daily trading.

J.P. Morgan Net Rises 20% On Private-Equity Gains [Wall Street Journal]

It’s Second-Quarter Earnings Results Week (hi-ooo) and Bank of America is poised to disappoint a lot of shareholders as a result of its insistence on doing business almost exclusively in ‘Merica. (Yes, B of A spreads the love in 45 countries but derives only 13% of its revenue from abroad). Analysts estimate that the Bank in America will report a 2% drop in profit, its first decline in 2005. Citigroup, which is among the biggest banks in Mexico, Poland and South Korea and gets nearly half of its sales from abroad, is expected to post an increase of 7.7%. JP Morgan, deriving twenty five percent of revenue from outside the U.S., is predicted to be up 6.4%.

Responding to allegations that B of A has dug its own grave by taking its name too literally (and that it’s not necessarily a great idea to put all your eggs in the ‘Merican basket when the domestic economic has been “growing at sub-3 percent”), CEO Kenneth Lewis offered: “We do better when we play to our strengths, and our strengths are in the U.S.”

Bank of America Profit Trails as Citigroup, JPMorgan Go Abroad [Bloomberg]

Validating the self-worth of a vastly undervalued bank, Apollo has lined up Goldman Sachs (and JP Morgan) as a key advisor on its forthcoming I.P.O. Goldman lost big time in the underwriting (drinking) game when it was only asked to play a minor role in the Blackstone offering and it was announced that Citigroup and Morgan Stanley will lead the KKR I.P.O. The snubs caused many people on the street to bitch and moan about the outright malarkey and wonder what in god’s name Goldman had done to suffer such indignities.

Goldman is also rumored to be a lead underwriting for AQR, expecting to file for an I.P.O. in the next few weeks.

Earlier: Inopportune Time To Be A Master Of The Universe

JPMorgan and Goldman get roles in Apollo IPO [FT]

We're not half as bad as JPMorgan's equity research team, who almost single-handedly perpetuated the bogus iPhone nano rumors. Here's how it went down, from Business 2.0:

It started Monday afternoon when Reuters picked up a report from a Taiwan-based analyst for JP Morgan named Kevin Chang. Chang had come across a patent application Apple filed last November 1 for a phone with an iPod-like clickwheel, put it together with some information he had gleaned from unnamed sources in Apple's supply channel and issued a report to JP Morgan subscribers dated Sunday, July 8, predicting that Apple would release a low-cost, Nano-sized iPhone before the end of the year and might ultimately sell 30 to 40 million of them.

JPMorgan released a subsequent report telling investors to ignore those wacky reports from Taiwan, then released another response that the firm sticks by the fact that a lower cost iPhone will be released later in the year (pulling a classic obfuscatory, "see, we were really saying something you didn't think we were saying, despite the fact that we said something else...cough...these aren't the droids you're looking for").

According to the rumor mill, Chang got fired over the incident.

Also, the iPhone can be turned to ash by some freaking adamantium blender (my blender, on the other hand, has trouble making Homestyle OJ less pulpy). (Courtesy of Will It Blend?, via Valleywag)

The iPhone Nano Saga [Apple 2.0 via Business 2.0 via BoingBoing via Your Mom]

Alert the National Guard: Goldman has now been left out as a major underwriting playa in two—count ‘em, two—IPOs. First there was the Blackstone slap in the face, and now KKR is jumping on the “Don’t touch me there, Goldman” bandwagon. The same banks who lead the B-stone deal, Citigroup and Morgan Stanley, will be underwriting KKR’s as well.

What’s with 1-2 punch? When it happened the first time, many believed that GS and JP were working on another P.E. IPO, there was a non-compete and so on and so forth. Others wondered if Goldman’s own “aggressive pursuit of private-equity deals alienated Steve Schwarzman,” failing to take into consideration that a 5’6” tall man probably has pretty thick skin. But Blackstone’s in the past—what’s the deal with the second snub?

As Reuters points out, JPMorgan doesn’t have a private equity arm capable of competing with KKR, but Henry Kravis may “have beef with the bank,” re: First Data Corp.

Reuters reported in April that Henry Kravis and crew were fuming at the way JPMorgan handled its proposed takeover of First Data Corp. Long story short, JPMorgan owns a majority stake in a First Data joint venture. KKR tried to reassure JPMorgan that the JV was not under threat, but JPMorgan pushed back, offering to buy out First Data’s 49 percent stake in the venture or dissolve the partnership altogether, sources told Reuters. That didn’t sit well with Kravis, sources say.

So that’s JP Morgan, okay, but the lack of Goldman is still coming as a shock to those who believe Goldman Sachs rules the world and all of its inhabitants (really, though, Goldman does have the ability to make it rain). So what’s up there? Some theories:

• Goldman’s private equity arm competes directly with KKR for deals.
• As noted by the ‘Bookies, in March, Lloyd Blankfein said, “It’s impossible for us to be in every piece of business,” which is kind of like hearing your deity admit to being human and will thusly be chalked up to Blankfein being drunk, and struck from the record.
• Goldman has different looting and plundering strategies from those of KKR
• Goldman needs a nap
• There can only be one bald supermogul per IPO
• Goldman is advising Apollo, Citadel
• Goldman is the midst of a herpes outbreak
• Kravis just doesn’t think Goldman’s all that good at the private equity business
• Goldman has told KKR in the past that it would underwrite its IPO—when small mouth bass rule the world

Goldman, JPMorgan out in the cold for second private equity IPO [Reuters]
Underwriting Henry: Who’s In and Who’s Out [DealBook]
Goldman’s Hedge Fund Alumni Network [Deal Journal]

The latest email making the rounds through investment banking circles is a bridge burning farewell from a young banker.

"I have been fortunate enough to work with some absolutely interchangeable supervisors on a wide variety of seemingly identical projects - an invaluable lesson in overcoming daily tedium in overcoming daily tedium in overcoming daily tedium," the email says.

It sounds like exactly the kind of bold declaration of independence that many young bankers dream of writing but almost never do. So many were applauding the JP Morgan banker whose name appears on the email as the author.

The only problem is that the banker on the email says he didn't write it. What's more, he still works at JP Morgan. It appears that the banker (whose name we're redacting to protect the innocent) is the victim of a hoax, although it's not clear who is responsible or why he has been singled out.

The email bears more than a family resemblance to a faux-farewell email message written by Upright Citizens Brigade regular and comedy writer Chris Kula. Kula’s original purely comedic farewell is here, although we have to dock him a few points for not having any fun banking scars or chiropractor bills to show for his faux angst.

Read the email that a JP Morgan banker didn't send after the jump.

With construction of its new JPMorganChase tower at WTC Site 5, Jamie Dimon can resume his rightful place at the top of the Greek Orthodox Church. Never one to be called anything but a strict constructionist, the belly of the DimonDome plans to rest over St. Nicholas Greek Orthodox Church and 165 feet over Liberty Park.

The building concept (pictured left), from Kohn Pederson Fox and The Real Estate, is being criticized as not only a good picnic spoiler but a bit of an eyesore, and may be pared back, according to architect Gene Kohn. The cantilever is a "beer belly" according to the New York Post and a "tower of darkness" according to Curbed.

Despite public opinion (the JPMorgan way!), the cantilever will exist at all costs, and contain JPMorgan's trading floors. JPMorgan plans on doling out a few million to the Greeks to keep them quietly in the shadow of the 42 story tower and amidst the whooshing lament of the vortex of lost souls.

One upping JPMorgan is the new Goldman Sachs World Headquarters (pictured right) at 43 stories down the street at West Street between Vesey and Murray (Battery Park Site 26). The tower, which has several more lateral bumps than a measly lone cantilever, is already 8 stories high under construction and expected to open in 2009. If the JPMorgan tower is the "tower of darkness" then Goldman HQ is the tower of light, or at least greenery, as the building is being prided as a marvel in green-tech and earning all sorts of eco-friendly certifications.

WTC Chase Tower Will Block Church's Heavens [Curbed via DealBook]
Goldman Sachs New World Headquarters (West and Vesey Streets) [Lower Manhattan.info]

JPMorgan has reversed the curse, and pulled into the top spot of the European I-Banking League Tables for the first half of 2007. JPMorgan was boosted by its strong performance in ECM, which commanded the second highest combined market share in ECM, trailing Deutsche Bank. The League Tables measure the combined market share of M&A, ECM and DCM. Citi was the only bank to finish in the top four in all three categories, and is 2nd in the League Table to JPMorgan.

Goldman, the Yankees of the financial world, remain much like the Yankees this year, sitting in a distant fifth place behind JPMorgan, Citi, UBS and Deutsche Bank (or 11 games out of first place). Goldman is quick to mention its top spot in European M&A, and high team OBP. Goldman has advised on $401bn worth of European transactions so far this year.

Spurred by megadeals like UniCredit/Capitalia, Enel & Acciona/Endesa, KKR/Alliance Boots, Reuters/Thomson and the ABN Amro bidding war between Barclays and RBS, deal volume in Europe has reached $1.3 trillion, and is expected to exceed last year's record of $1.5 trillion.

JP Morgan leads in investment banking [Financial News via Dow Jones]

Lehman may have dominated day one of the JPMorgan Chase Corporate Challenge, but day 2 was more bearish for bankers, and bullish for GlaxoSmithKline. Day 2 also featured faster times overall.

GlaxoSmithKline was responsible for two explosive runs on the women’s side, courtesy of over the counter diet drug Alli, and the fact that the top two finishers, both from GSK, did not bring a pair of dark running shorts. Jessie Webb ran a 20:03 and Christa Meyer ran a 20:24, losing an impressive 7 pounds.

The only banker in the women’s top five was Sumitomo’s Katarina Melville who finished in third with a 20:27. Only a financial services employee, accustomed to much longer periods of getting shat on, was able to draft the GSK girls so closely.

Andy Bishop from GSK finished in fifth for the men with an 18:40.

The top two male finishers from last year squared off in the same race this time, and finished in the same order. Karl Dusen from AIG ran a 17:25 and John Traugott of Credit Suisse ran a 17:48. Dusen finished with the top overall time (too early to start “Dynasty” talk?), while Traugott’s time was 6 seconds off yesterday’s top finisher, placing him in third overall.

Click here to take a photographic journey of the race.

2007 New York results [JPMorgan Chase Corporate Challenge]

The JPMorgan Corporate Challenge kicks off tonight in Central Park at 7:00pm with the first of two 3.5 mile races. The event, which started in New York in 1977, is now held in 12 cities on five continents with over 200,000 participants from 7,000 organizations.

The banks make up a large portion of the 15,000 race registrants. Here are the registration numbers for the top five:

Morgan Stanley – 1,605
JPMorgan – 1,450
Lehman – 800
Goldman – 550
Citi – its own version of the 1980 Olympics, boycotts on principle

Goldman limited its roster to 550 after almost 800 employees tried to register, according to the bank’s fitness center manager. Does anyone know why Goldman had to limit its registrants (and please tell me they had tryouts or cuts to determine who made the final 550)?

Last year, of the major banks, CSFB has the most outstanding individual performer - ’03 Harvard alum and track captain, John Traugott, who is an associate in the equity capital markets group. Traugott had the 2nd fastest time overall in the men’s division over the two races with a 17:48.

Karl Dusen of AIG posted the fastest overall time in the second race with 17:05 and Joseph Mcveigh of Morgan Stanley posted the 3rd best time with 18:18.

If anyone has any fun corporate challenge stories, or is planning to pull a Jeff Gillooly on John Traugott, please comment or drop a line to 'tips at dealbreaker dot com.'

Wall Street Rivals Run for Charity, Bragging Rights and Beer [Bloomberg]

Merrill has postponed the auction of $400mm in assets it seized from the High-Grade Structured Credit Strategies Enhanced Leverage Fund at Bear Stearns, Charlie Gasparino of CNBC is reporting. Merrill and other major lenders to the fund, including Citi and JPMorgan, are in a feel-good asset management "pow-wow" with Bear this afternoon. The fund is expected to make its case that it has a plan to recover from it recent catastrophe in the subprime market.

An announcement on what will really happen to the fund assets is expected later today or tomorrow.

Merrill Lynch Switches Gears [CNBC.com]

Let’s see if we can get this right. Deutsche Bank is currently housed at 60 Wall, in the building that used to be the JP Morgan Headquarters. Now JP Morgan is going to be moving to where Deutsche Bank used to be located.

We wish this was symbolic. It would be better if it meant something.

[After the jump, read Jamie Dimon's email announcing that the investment bank will build a tower at the site.]

Chase Bank Set to Build Tower by Ground Zero [New York Times]

JPMorgan is going to testify to the Greek parliament tomorrow regarding the underwriting of a $364mm structured bond on behalf of the Greek government and sold to local pension funds. Last week the pension funds agreed to sell the bond back to JPMorgan at face value, to the tune of a 20m euro loss for JPM and a London-based hedge fund. The deal came after the Greek government agreed to cover the bond's interest payments, when the pension funds claimed that they were getting the shaft. For some reason, Mediterranean pension funds keep buying bonds at crap prices, which is something that the Greek government is looking into.

JPMorgan to defend its Greek bond role [Financial Times via MSN Money]

JPMorgan is ready to love again after leaving Nasdaq when the US exchange suffered some anger management issues in its hostile bid for the London Stock Exchange last March. JPMorgan and Nasdaq are back together harassing foreign exchanges – trying to make the Scandinavian OMX dance for $3.7bn. Morgan Stanley, Credit Suisse and Swedish firm Lenner & Partners are advising OMX.

After the Nasdaq bid for the LSE was rejected, Nasdaq began accumulating LSE shares (a downward self-shame spiral). Nasdaq could not obtain enough shares (over 50%), or a positive enough self-image to cement control of the company, but became the LSE’s largest shareholder in the process, with over 29% of the company’s stock. JPMorgan backed out as Nasdaq’s advisor primarily because JPMorgan’s Cazenove divison is joint broker to the LSE.

Advisor reprises role after LSE conflicts [Financial News]

Alpha Magazine’s hedge fund rankings are in and the banks have faired quite well. JP Morgan and Goldman took 1 and 2 (despite the latter’s 6% loss last year), with $33 billion and $32.5 billion in total capital as of December 31. In third and fourth were Bridgewater Associates and DE Shaw, who both had over $30 billion. Citigroup moved up a respectable 32 places to 13th, from its previous spot at 45. Morgan Stanley clocked in at embarrassing 53, considering all the hedge funds it bought last year.

Everyone’s favorite quant fund, Renaissance Technologies was ranked in 6th place, with $26 billion in assets. Somewhere, David Leonhardt has worked himself into an apoplectic shock and plotting to send pipe bombs to Alpha headquarters.

As a side note, we’d like to thank Financial News for referring to Amaranth as a "notable absence" from the list.

Banks top hedge fund rankings [Financial News]

The family that controls 64% of the voting power of Dow Jones & Co is reportedly meeting right now to discuss News Corp’s bid for the company. David Faber of CNBC reported just a short while ago that the Bancroft family, which controls Dow Jones through its super-voting shares, was holding a conference call “right now” to discuss the bid. This may be a sign that the family is re-considering its rejection of the News Corp offer.

Today Bancroft family members received a letter from Rupert Murdoch stating that he regrets the details of the offer had become public and promising to establish an “independent, autonomous editorial board” to oversee the paper. In the letter, Murdoch describes himself as a “first and foremost…newspaper man,” praises the Wall Street Journal’s “journalistic independence and integrity” and says his is “unwilling to contemplate” any interference with the paper’s integrity. He writes that he would like to appoint a member of the Bancroft family to the board of Dow Jones.

“This letter may give the Bancroft’s a way to accept Murdoch gold , if that’s what they’re looking for,” an investment banker familiar with the deal told DealBreaker. “They’re haven’t been any other bidders, which must put pressure on them to accept this offer.”

Murdoch probably hopes that this is exactly what effect his letter will have. He’s steadfastly refused to offer more money than his original offer. Last week, CNBC’s Charlie Gasparino reported that he had been advised not to offer more by his bankers at JP Morgan had told him not to increase the bid. As we explained on Friday, Murdoch’s strategy to win over the Bancroft’s now appears to rely on charm and promises to not ruin the paper.

Murdoch also promises to make efforts to keep the team of “journalists, editors, management” of the Journal and other Dow Jones properties, expand the Journal in Europe and Asia and improve the Journal’s New York headquarters.

Text of Murdoch Letter to Bancrofts [Wall Street Journal]

News Corp & DJ Update [CNBC.com]

Lawsuits are flying between Dow Chemical and a former executive and board member. The legal face-off started as a spat over body language between CEO Andrew Liveris and Romeo Kreinberg, who ran the chemical and plastics portfolio. Liveris wrote in a review that he didn’t appreciate Kreinberg’s “negative body language,” and threatened to fire Kreinberg if he didn’t stop pretending to shoot himself in the mouth with his finger every time Liveris proposed an initiative. Kreinberg was canned in three weeks, after an especially aggressive display in which he simulated the post-shot, through the head splatter, after Liveris issued a cost-cutting plan in a meeting. Kreinberg also was accused, along with board member J. Pedro Reinhard, of having unauthorized discussions with third parties about the acquisition of the company. The third party - JPMorgan.

Yesterday Kreinberg and Reinhard fired back with a defamation lawsuit against Dow Chemical and Dow Chemical responded by suing both men. It’s the legal equivalent of a John Woo action scene.

How did Liveris find out about the unauthorized talks with JPM? Jamie Dimon told Liveris himself.

The details of the tryst, from the New York Times:

At the Compleat Angler, a luxury hotel overlooking the Thames, the two Dow Chemical officials met with two senior executives of JPMorgan Chase in early February, according to people who attended the meeting.

In addition to Mr. Kreinberg and Mr. Reinhard, the meeting was attended by William Winter, the co-head of investment banking of JPMorgan, and Ian Hannam, a managing director of JPMorgan Cazenove who was the point man on the discussions. The meeting was organized by Terrance J. Ruane, a consultant to Dow Chemical who had helped lead the company’s deal making in Oman.

Kreinberg and Reinhard’s camp maintains that the meeting was a typical interaction between bankers and business execs and that there was no secret plan to buy the company. Dow Chemical’s lawsuit claims the exact opposite, and claims Jamie Dimon personally provided “irrefutable evidence” to the contrary. Dimon even had dinner with Liveris, and may have even paid for it.

Did Dimon get caught playing both sides here? Was Jamie Dimon's hand forced in order to keep in Dow Chemical's good graces (and running advisory fees) when JPMorgan's attempt to win a huge and potentially hostile buyout became more and more unlikely (or discovered)?

Behind the Dow Chemical Firings, a Tangled Corporate Drama [New York Times]

If you saw the video in write-offs yesterday (here, if you're lazy), you saw the arguably hoax-free video of some Service Employees International Union (SEIU) members rummaging through trash outside of JPMorgan branches in the city and digging up some lovely invitations to commit identity theft. JPMorgan is on the case, according to an official spokesperson, who boldly comments, "We hope that the union people who got this personal info would not misuse it." Well played JPMorgan spokesperson (his first response was to wave his hand and say "These aren't the droids you're looking for"). The real issue is that those union members may now go on an identity theft rampage.

Video lights fire at JPMorgan - [CNN]

Jim Cramer doesn’t want you to hate the game, or the playa. And in his column in the latest issue of New York, the “game” refers to making money; the “playas,” I-bankers (and I-bank CEOs, and, more generally, I-banks). Sure, you might be saying, why shouldn’t I hate the $54 million/year Lloyd Blankfeins and the Goldman Saches of the world? Not only are they terribly unhygienic, but they make more in an hour than I do in a month (or is that just us at DB? Don’t answer that) and I’m a jealous, small and petty person (to say nothing of my unresolved issues from childhood, which probably feed into the pettiness in a vicious, never-ending circle).

You’re saying that, right? Well Big J has the answer. If you invest said “playas,” you’ll get to be part of their “game” and your resentment will disappear because when you’re rich, you can buy the antidote to resentment. Another reason you shouldn’t hate these “playas” is because Cramer used to work for Goldman Sachs and never fails to mention this (or his relationship with Spitzer, which, let’s be honest, you really can’t blame him for, because Goldman Sachs is an incredible institution and Spitzer is essentially God’s special gift to the world and politics at large). Here are some other arguments for why you should cross Lloyd, Dick and Stanley off of your To Kill lists (hint: they all have to do with their outifts making you money, and Chuck Prince having less financial acumen than Cramer’s garbage disposal):

1. These guys are basically stay-at-home moms: underpaid and, more importantly, unappreciated.

Stop envying Goldman Sachs’ Lloyd Blankfein already. Don’t begrudge Bear Stearns’ Jimmy Cayne and Lehman’s Dick Fuld their millions. Let Merrill’s Stan O’Neal and Morgan Stanley’s John Mack get paid more than Croesus. You heard it here first: They deserve it. In fact, they deserve more than they earn now. Those five men are underpaid because they are about to make you very rich if you buy their stocks.

2. They will make you Kings of Great Neck, Dukes of Roslyn with Asset Management alone. And, not to brag or anything, but if you must know, Cramer predicted Asset Management would be a major money-maker YEARS AGO, before assets were even invented. Of course, no one at 85 Broad listened to him, just like they didn’t about gravity or 9/11.

Just in case you were worried that JP Morgan was going to make good on its “threat” to ship off to Stamford (who were they threatening? Their own employees?), DealBook notes that the move is, in all likelihood, a bluff. Also: a cheap and what will (probably) turn out to be an unsuccessful attempt to get New York to raise its $100 million incentive offer to the $650 million it gave Goldman Sachs in 2005 (would you give your mistress a diamond the same size as the one you gave your wife? Actually, that analogy doesn’t quite work).

Even the mayor of Stamford, Dannel Malloy knows he and his city are just a pawn in Jamie Dimon’s (incredibly) passive aggressive attempt, telling the Stamford Advocate, “It’s a little leverage. I’m not holding my breath.”

J.P. Morgan in Stamford? Even the Mayor Has Doubts [DealBook]

The results of yesterday’s “Which bank has the dirtiest working conditions” poll are in. Some of the results may surprise you, some may not. If you actually read what we wrote about Bear Stearns’s in-house cafeteria and its 42 health-code points violations, for instance, you won’t (or shouldn’t) be surprised to learn that it landed in the top three (and if you read the part about contaminated food and inadequate levels of personal cleanliness and are still stunned, don’t invite us over to your home any time soon). If you didn’t know, though, that the 85 Broad is basically one step away from a gas station restroom on the Garden State Parkway (going South), you might be a bit caught off guard to learn that the Kingdom also landed at the top of the list of shame (all that glitters is not gold, indeed). Let’s examine the cold hard (dirty, disgusting, scatological) facts now.

“Firing Jamie Dimon was the worst thing Sandy ever did,” the investment banker said. It was a glorious Friday afternoon. The weather had performed an April summersault, turning over from winter to what felt like summer almost overnight. It was the kind of weather that inspires people—okay, us—to leave work early and starting drinking with friends. Which is how we found ourselves looking out onto a narrow street in the East Village drinking pints and talking about Jamie Dimon, Sandy Weill, Citigroup and JP Morgan Chase.

“It was over something completely trivial,” the banker said. He definitely had our attention with this remark. Lots of people believe that Citigroup has suffered since Jamie Dimon was let go by his longtime mentor Sandy Weill. And a lot of people have theories about why this friendship soured. But we love hearing all of them. He took the head-off his pilsner while we waited for him to expand. This is an old interviewers trick—using silence to elicit elaboration. His counter-strategy of drinking more was testing the limits of his patience.

He took the bottom off his beer and looked to the bartender for another round. We broke. “Okay, okay. What was it? What was it that got him canned?” we asked.

The next round arrived. We placed a bill on the bar but kept our hand on it. The message in the motions: keep talking and this round is on DealBreaker.

“It was something involving his daughter. Sandy’s daughter,” he said. Our hand came off the bill. This round was definitely on us. What had happened between Dimon and little miss Weill that could get Dimon thrown out of Citigroup?

“Completely trivial. I think Weill wanted his daughter to get a job, some promotion. Dimon didn’t want to give it to her. Thought she was under-qualified,” he said. “The guy I work for was in the room one day when they had a fight over it. When the fight was over, apparently so was the relationship. It was very strange because Sandy and Jamie had this whole father-son thing going on. This was Sandy choosing blood over his more or less adopted child, Jamie. Like Hamlet in reverse. The step-father kills the kid. Or maybe King Lear, with Dimon as the daughter who won’t suck up to daddy Lear.”

We aren’t even going to call Dimon’s office to authenticate this. And certainly not Weill. They probably wouldn’t comment. And if they did comment, it would just be a denial. We’d actually heard this theory before but this was the first time we’d heard it from someone claiming to have anything this close to first hand knowledge of the dispute. It was second-hand knowledge but that's as close as anyone has ever got to this story.

The next round was on us also. Not as a reward for that story. It was, after all, an old and often told story. But as an enticement for the next one, the one about Dimon’s plans for acquisitions and his meeting with Bear Stearns executives. But that will have to wait for another post.

Last night we made a brief appearance on one of our favorite CNBC shows, On The Money, and spent a bit of time talking about the Big Idea of spinning off Goldman's trading and hedge fund business.

In the first part of the segment host Melissa Francis asked CNBC's Charlie Gasparino about possible big bank deals in light of the stellar performance of JP Morgan Chase. You know how these things work. A company reports numbers like the one's the JP Morgan Chase did this week and the investment bankers come out of the woodwork with pitchbooks at the ready. There will be pressure to do deals, to start making acquisitions. The question is whether chief executive Jamie Dimon will give in to the seduction of the dealmakers or whether he'll continue to abstain.

Gasparino's convinced that Dimon won't start building JP Morgan Chase into an empire of acquisitions. The most talked about deal on the street, an acquisition of Bear Stearns, would be too expensive, Gasparino says. We agreed, mostly because we think will be hard for the bank to find a bank or financial services company that is beating JP Morgan Chase in an area that the bank is interested in growing. (Although we're ready to hear from you if you've got likely targets. Leave a comment or send an email to tips@dealbreaker.com.)

At the end of the segment we turned to the Big Idea. Since we first published the Big Idea, we've talked to investment bankers who think that spinning off the hedge fund and trading business might be a good way for Goldman Sachs to realize the value of the business it built up. Goldman doesn't seem to get full credit on Wall Street for its hedge fund and trading operations, in part because Goldman's disclosures about these groups is somewhat opaque. A serious danger faced by Goldman is that its top traders might look elsewhere for a big payday.

And that's where the Vikram Pandit factor comes in. When he was at Morgan Stanley, Vikram made decent coin but nothing that would make headlines or build multi-generational empires of wealth. He left to found his own hedge fund, and one year later sold it to Citigroup for a rumored $600 million. That has to have a lot of people, not just at Goldman Sachs, scratching their heads and doing some quick math about the risks and rewards of striking out on their own. We're hearing from investment bankers who have talked to people insider the firm that Goldman could face pressure to spin-off its trading and hedge fund business in order to realize the value of the business before its guys start to defect or strike out on their own.

Perhaps the strongest case against this idea rests on four factors. First, breaking-up and spinning-off runs contrary to the current orthodoxy on Wall Street, where the banks have been acquiring hedge funds and building private equity businesses. There's the value of the Goldman Sachs name, which communicates an undiminished elite status. There's the knowledge within Goldman that the larger firms needs its trading business, and it will be loathe to let it go under any circumstances. And, perhaps most importantly, there's Goldman's share price, which is now trading at its 52-week high. Everyone with equity has been getting a raise for the past several weeks. That's no doubt dampening the urge to split.

Banking on Big [CNBC]

The deal announced this morning to take Sallie Mae private could point to a new era of leveraged buyouts in a segment of the market long-considered off-limits to the buyout rush—the financial services sector. One of the strongest objections to proposed private equity takeovers in the financial sector has been skepticism that it would be possible to borrow enough money to finance a takeout of an already highly-levered financial company. But student loan lender Sallie Mae supports a tremendous amount of debt, and yet the deal announced today includes a plan to layer on even more debt.

“The company has about $116.14 billion of total assets, supported by $4.4 billion of stockholders' equity, making it a highly leveraged entity already,” Reuters reporter Dan Wilchins noted on Friday. “Some corporate bond investors questioned how a leveraged buyout of Sallie Mae would work.”

The dealmakers who put together the Salle Mae buyout, however, have apparently found a way to work. In addition to two large private equity firms, JP Morgan Chase and Bank of America are taking large equity stakes in Sallie Mae. Both banks have apparently committed to providing financing for the transaction, as well as ongoing liquidity to finance the companies operations.

We may be looking a whole new era of private equity deals in the financial services sector. Last week we reported that financial writer Felix Salmon was proposing a private equity take-out of Goldman Sachs. Many readers objected that it would be impossible to finance a leveraged buyout of Goldman Sachs because the company is already so highly levered, an opinion that was widely shared on Wall Street. This morning’s Sallie Mae deal may mark a change in that thinking.

Negotiators Say Sallie Mae to Be Sold for $25 Billion [New York Times]
Investor group to buy Sallie Mae for $25 Billion [Press Release from Sallie Mae]

An initial public offering has been ruled out by Kohlbeg Kravis & Roberts, sources tell DealBreaker. “KKR is next” was one of the most persistent rumors that arose in the wake of news that Blackstone would offer $4 billion of limited partnership equity to the public was. There were published reports claiming that bankers at Goldman Sachs were already at work on putting together an IPO for KKR—and those might have been correct. Perhaps there were bankers pitching an IPO to KKR. Perhaps the venerable private equity titan had even encouraged the bankers. But now we’re told that the IPO is off. Indefinitely. Permanently. For now.

Word from CNBC’s Charlie Gasparino that Goldman and JP Morgan were working on an IPO for Apollo Management, and subsequent stories in the Wall Street Journal and New York Post, quickly helped Apollo replace KKR in Wall Street afterhours chatter and on the pages of the newspapers. Part of what had been feeding the KKR rumors was the feeling that Goldman—which was notably absent from the list of advisers to Blackstone for its IPO—must be working on something for a Blackstone competitors. How else had one of the premier banks been shut out of one of the most talked about deals? It seemed the door was held open for nearly everyone else on Wall Street.

Apollo fit just as well as KKR for this theory, and reports and rumors of its impending IPO private placement have quickly replaced those pointing to KKR. Even denials by people “close to Apollo”—as DealBook reported—and by people who maybe know some other people who are familiar with things that sometimes happen at Apollo—as the Wall Street Journal reported—haven’t quenched the thirst for this story. This morning's WSJ report only served to confirm that it was Apollo and not KKR whose deal was keeping Goldman occupied during the rush of other banks into the arms of Blackstone's IPO.

But we came not to discuss the history and origins of the KKR rumor but to lay it to rest. Our sources—lets call them, “people familiar with KKR’s plans”—tell us the KKR has decided to stay out of the IPO game for the time being. The reasons we’ve heard are purely speculative: it didn’t like the comparatives with Blackstone, it didn’t like the attention Blackstone and its tax treatment were getting, it didn’t think the timing was right, it didn’t think the price would be good enough to justify the headaches of added public scrutiny, the KKR-ers aren’t pushing for freely transferable equity stakes like the ‘Stoners are. Take your pick or invent your own.

It’s the story that won’t stand still even long enough for a blog to report on it. Last night the Wall Street Journal’s Kate Kelly and Susan Pulliam reported that Apollo has retained Goldman Sachs and JP Morgan to explore a private placement of ten percent of it’s equity, possibly for as much as $1.5 billion.

Some highlights from the WSJ:
• If 10% of Apollo goes for $1.5 billion, Apollo founder stands to make a cool $750 million because he owns half the equity of the firm. [DealBreaker’s note: Damn it feels good to be Leon Black.]
• The private placement would allow Apollo to cash in some of the value of its equity while the market for private equity is still hot while avoiding hitting the public markets with private equity offering too close to the Blackstone IPO. [DealBreaker’s note: So Apollo avoids the risk of a public market slow-down before the IPO and pushes that onto the private purchasers? Great work if you can get it.]
• A private placement wouldn’t require immediate registration with the Securities and Exchange Commission and would postpone the need to make SEC compliant financial disclosures. [DealBreaker’s note: This means the deal could get done very, very quickly. Registration and compliant disclosure take time. Roadshows and financials for institutional investors—much easier to put together.]
• Despite all these details, it’s still not 100% that this thing will even happen.

[Editor's note: Graphic is "Birth of Apollo." Hopefully more pleasing to the eye than that Blackstone IPO thing we've been throwing around lately.]

Apollo Explores Sale of 10% Stake In a Private Deal [Wall Street Journal]
Equity Firm Is Seen Ready to Sell a Stake to Investors [New York Times]

One storyline that is clearly emerging from the various private equity and hedge fund IPO rumors and reports is that the investment banks are gunning hard for this business. And they’re not waiting around for hedge funds to decide to go public—they’re pitching, even pushing, the idea of launching a public offering on the firms.

“All over Wall Street, bankers are pushing private-equity shops to move quickly, reminding them that market conditions could deteriorate and diminish investor appetite for any offering,” Wall Street Journal reporters Katie Kelly and Robin Sidel write in today's paper. “In this case, however, it isn't clear whether bankers are more concerned about a capital-markets slowdown or getting a high-profile deal to the finish line before rival firms attempt to do the same.”

A sign of how ultra-competitive the investment banks have become for this business is the public attention paid to the fact that Goldman Sachs was not included as an underwriter for the public offering of Blackstone partnership equity. There was a lot of speculation about why one of the premier banks on Wall Street (yes, yes, Broad Street, we know, “Wall Street” is a metaphor or a synecdoche here) was left out of a deal that seemed to include every other bank on the Street. Was it because Goldman “called bullshit” on the Blackstone IPO, as some said? Or was it personal animosity between the higher-ups at Blackstone and some prominent Goldman personages? Or—and we’re sorry there are so many “ors” here but that’s just the way the world is—was it that Blackstone was hesitant to let Goldman—which competes with Blackstone in many of its businesses—do much digging into its books in preparation for the offering.

If the reports of an Apollo IPO—a story broken by CNBC’s Charlie Gasparino yesterday and carried several millimeters forward in today’s Wall Street Journal and New York Post—are correct, then it seems we have the answer: Goldman couldn’t take the Blackstone business because it was already working on the offering of its competitor. Now Goldman is famous for finding creative ways to cleverly untie seemingly Gordian knots of conflicts—but underwriting two competing private equity IPOs might have been too going too far.

That’s the story as we’ve heard it. But the boys at Deal Journal have an alternate reading of the Apollo story. They write that the Apollo IPO isn’t so much of what kept Goldman out of the Blackstone underwriting syndicate—it’s a consolation prize for the banks, a bit of business they apparently pushed to get after being shut out by Blackstone. Of course, Deal Journal has been a big proponent of the Blackstone In Competition With Goldman theory, and this take would allow them to leave that notion in place. The Apollo Conflict theory, in fact, undermines the whole idea that Goldman was shut-out.

Of course, we’re probably just counting our eggs while they are still in the bush. Or however the saying goes.

The last time we checked, the only reason to be envious of Lloyd Blankfein’s henchmen was because some of them were getting upwards of $100 mm in bonuses (and because B-fein had carried on a tradition instituted during the Paulson era wherein on Tuesdays and every first and third Friday of the month, the girls are on Goldman).

According to the WSJ, however, there’s a new motivation for keying doctored league tables into the Goldies’ cars: trading floor envy. The Masters of the Universe are in the midst of erecting a “gleaming new building in lower Manhattan that will feature six gigantic state-of-the-art hangar-size trading floors (72,000 square feet each, with room for more than 900 traders on each floor)” and a Jamba Juice. If you’re the sort of person who’s made jealous by that sort of thing, you’re not alone—the top BB-banks are going to great—desperate, sad, whatever—lengths to keep up with the Goldmans. Let’s take a look at the competition.

Lehman Brothers Holdings:
Mulling over a deal with Vornado to build a HQ and trading floors where the Hotel Pennsylvania on Seventh Avenue still stands, i.e. Penn Station/MSG adjacent. Good for those commuting into the city on the Midtown Direct already/can’t resist Auntie Anne’s. Bad for anyone under 40/more importantly, those with an aversion to the types of people who ride the LIRR (read: anyone who doesn’t ride the LIRR and even some of those who do. Self-loathing. You know how it is).

Merrill Lynch & Co.:
Also considering the Hotel Pennsylvania site, in addition to the new WTC area currently under construction. Lease is up in 2013. The clock is ticking.

J.P. Morgan Chase & Co.:
Talks with the Port Authority are “progressing but not a done deal yet.” The only thing we know about the Port Authority is that it’s a good place to pick up hookers…and with our analyst and associate attrition…you do the math.

Morgan Stanley
Has “talked with several landlords about spaces large enough for improved trading facilities, though its plans are unclear.” A spokesperson for Morgan declined to comment though we’ve heard that Robert Kindler will only entertain the possibility of venues large enough to host the Mergers and Acquisitions book party.

Wall Street Firms Vie To Expand Trading Floors [WSJ]

Fewer transactions but bigger numbers in the US mergers and acquisitions market means the battle for league table placement in the quarter just ending was especially hard fought.

Goldman Sachswas the top adviser for US mergers, according to the research firm Dealogic, boosted by its role in the huge TXU buyout offer. It was followed by Morgan Stanley and JP Morgan Chase. While Dealogic’s tallies aren’t viewed as important as those assembled by Thompson Financial, you can bet there is some back patting and grinning over at Goldman this morning.

And maybe, just maybe, Lloyd Blankfein put a little extra sugar in his Styrofoam coffee cup this morning.*

*This whole Lloyd loves the Styrofoam thing was, as far as we can tell, made up by Bess Levin. Factual accounts of how Bankfein takes his coffee—if at all—are always welcome. Goldman could not immediately comment on this matter when contacted this morning.

Merger market unfazed by market volatility [Reuters]

One of the more creative Enron lawsuits was dismissed by a Manhattan federal judge yesterday. The plaintiffs were shareholders of JPMorgan Chase who said they bought the stock because of the company's reputation for integrity and financial discipline but had been deceived because JPMorgan Chase was helping Enron, a major client. You can see how free-wheeling this kind of liability could get--and how it would really amount to a requirement that banks police all their clients for fraud.

Ever wonder how those science fiction worlds where the banks run their own police forces get started? Well, now we know. And we're glad we don't yet have to welcome our new banking police masters. Yet.

We will admit that there is some evil part of our brains that is sorry to see this lawsuit go. It's the part that is going to miss the spectacle of JPMorgan arguing that it had not overstated its own reputation for integrity. They could have done this in two ways. First, by arguing that they fully deserved a high reputation, but our lawyer friends tell us that this would have been almost impossible to prove. Second, by arguing that their reputation wasn't really all that. You know, the "look, bitch, you knew I was a snake when you picked me up" defense. This also might not have been the way JP Morgan wanted to go, either. But it sure would have been fun to watch them squirm between the unprovable and the unpalatable.

Enron Class-Action Suit Is Dismissed [Reuters in NYT]

Ex-JPMorgan banker Dana Vachon's** much-anticipated and hysterically funny novel, Mergers & Acquisitions, comes out in three weeks. The backdrop is an investment bank called JS Spenser that now has its own website, which includes a page with business cards for several of the characters, some of whom may or may not have real-life counterparts at JPMorgan who shall remain nameless. For the moment. Guesses, however, may be delicately placed in the comment section where they will be reviewed by DealBreaker's Bess Levin, who will love, feed and take care of them until the book is out, when they will be displayed for all to see. In a friendly, non-litigable way, of course. (See especially, "Terence Mathers" and "Dewey Ananais.")

Vachon, who once managed to convert the US dollar into itself on a real estate deal, is far better at writing about bankers than he was at being one, so banking's loss is literature's gain. The book can be pre-ordered here.

JS SPENSER

** Obligatory Spiers disclosure: Vachon is one of my best friends. And the book is dedicated to me. And we have the same publisher. So there are really too many conflicts of interest to count. But funk it; If JPMorgan gossip isn't DealBreaker fodder, I don't know what is.

Well, that was kind of anticlimactic. After a big buildup this week—and rumors that JPMorgan Chase CEO Jamie Dimon might announce a big acquisition and talke of a possible merger with Bear Stearns—the big news out of yesterday’s meeting with shareholders was that there is no big news. Organic growth. More investment bankers. More traders, especially energy traders. Regional acquisitions in BRIC-type countries, especially Russia and Brazil. Yadda, yadda, yadda, as they used to say.

J.P. Morgan Shuns Dealmaking for Growth, for Now [DealBook]JPMorgan Will Expand Investment Bank, Hire Traders [Bloomberg]
JPMorgan chairman says 'acquisition capable' [Reuters]

Can you feel the electricity in the air? No? Neither can we. But if you were a major investor in JP Morgan Chase, you might at least feel twinges of anticipation for tomorrow's big event: Jamie Dimon confronts the shareholders.

From today's "Heard on the Street" column:

James Dimon will start a new phase of his career at J.P. Morgan Chase & Co. when he stands before a roomful of shareholders tomorrow. After 2½ years of slashing costs and plowing money into key businesses, J.P. Morgan's top executive must convince investors that those efforts can pump up revenue growth and profitability in everything from retail branches to bond trading. Investors are also likely to question him on the possibility of acquisitions, an issue Mr. Dimon, 50 years old, addressed at the end of January.

Mr. Dimon is well aware of the longstanding criticism that the bank hasn't shown consistent internal growth. The pressure to do so comes amid tougher conditions this year in the banking industry, where profits are likely to be hurt by weakening credit quality, fierce competition for deposits and loans and a difficult interest-rate environment.

Tomorrow, Mr. Dimon and the top bosses of the bank's key businesses are expected to provide some fresh details about how they plan to fatten the bank's bottom line. They might fine-tune some targets for the bank's operations but aren't expected to disclose any big new strategies for the bank.

It will be J.P. Morgan's first daylong meeting with investors since Mr. Dimon, who was named chief executive officer of J.P. Morgan last year, also became chairman after the recent retirement of William Harrison.

Questions most likely to be asked: what's up with all this talk of a big new acquisition? Are you really going to buy Bear Stearns?

Question unlikely to be asked: how pumped are you to see all this trouble at Citigroup? Sex scandals? High level resignations? Corporate intrigue and executive reshuffling? Is this the bestest time ever or what?

New Stage Awaits J.P. Morgan's Dimon [Wall Street Journal]

It’s widely known that Jamie Dimon’s been jonesing for a big acquisition for some time and, according to our semi-credible sources’ quasi-credible sources, Bear Stearns might just be the fix. While there’s been some whispering on the Street that Dimon could be eyeing Washington Mutual Inc., we’re told that Bear’s issued a firm-wide hiring freeze as a result of Dimon’s imminent shopping spree and Bear’s overtures. Know something we don’t? You can find us in our usual haunts. On a related note, Carney and I watched Heathers three times this weekend. (His idea).

J.P. Morgan has reported record fourth quarter net income, due to investment banking and one-time gains; $4.53 billion ($1.26/share), from last year’s $2.70 billion (76 cents/share). In a press release, Jamie Dimon offered: “during the fourth quarter, we posted both record revenue and income from continuing operations, reflecting increasingly strong results across most of our businesses.” Later, he was heard saying, "The real pissing contest will come Friday, when Citi(group) releases what I predict will be significantly weaker numbers. Don't mess with the bull or the horns you will get, me being that bull in this scenario."

J.P. Morgan Net Rises 68% On Investment Banking [WSJ]
J.P. Morgan Chase Press Release

Since you asked: Below is guest-blogger Keith Hahn's "legendary farewell email" to his colleagues at JPMorgan, upon leaving tech/media/telecom IB:

From: keith.r.hahn@jpmorgan.com < keith.r.hahn@jpmorgan.com >
To: [redacted]
Sent: Thu Jun 30 13:44:18 2005
Subject: The end of an era

Dear All,

As many of you may know, farewell emails must start like this or some planetary misalignment triggers the spontaneous combustion of several exotic and furry species. That being said today is my last day at JPMorgan. I would say that it's been a pleasure working with all of you, but then again, losing the ability to walk fully upright, several inches in various key places, and possessing a gait resembling someone just released from a night in a maximum security state penitentiary would suggest otherwise.

Although the tone of this email smacks of someone who just got the equivalent of the petting zoo parting gift behind the wrong door in "Let's Make a Deal" in lieu of a normal banking bonus, I assure you, that even though the bonuses of the departing second years make Planck's constant seem like a Powerball jackpot, I am not bitter. After all, a firm must try especially hard to have a retention rate pegged somewhere between the NYC water main and an incontinent schoolboy, and have a unique talent to put a veil over people's eyes so thick that it makes a burqa seem like a leopard print thong. Thus is the nature of the sweetly scented veil of empty rhetoric, in which all pitch-books are under 25 pages, each telecom dividend is more "special" than the last, each project is on its way to becoming the "SECOND BIGGEST LBO EVER!," and all GBC bindings are dolphin friendly.

A long, long time ago we had dinner with a prominent federal appeals court judge who was known to be a proponent of the idea that regulatory agencies tend to be controlled by the very interests they are meant to regulate. To show how smart we are, we explained how this kind of regulatory capture happens—the standard public choice stuff about how industry has an immense and concentrated interest in the operations of the agency, while the broader public it is supposed to protect has only a slight, passing, and disparate interest and is largely too ignorant to follow the debate.

“Wrong!” the judge told us. Describing the agencies as “captured” he said implies that they were ever independent, when in fact the entire process of agency control by special interests operates right from the start. “Agencies are not captured, they are created at the behest of special interests and operated to meet the goals of those interests,” he said.

Since then, we’ve tried to tamper our cynicism about agencies but to little avail. Because things like this keep happening: yesterday JPMorgan Chase hired Stephen Cutler, the former head of enforcement at the SEC, to be it’s top legal counsel.

And of course, this is hardly the first time an SEC hotshot has landed in a Wall Street sweet spot:

The appointment makes Cutler the third former SEC enforcement chief on Wall Street, following a path cleared by former government regulators, including Deutsche Bank AG General Counsel Richard Walker and Gary Lynch, the top lawyer at Morgan Stanley. Cutler will succeed Joan Guggenheimer, who was among the closest advisers to JPMorgan Chief Executive Officer Jamie Dimon before she died of cancer in July at age 54.

News broke late yesterday that JPMorgan has more or less fired it's top natural gas trader, Parker Drew. Supposedly unrelated to Amaranth. Anyone care to venture a guess as to why Drew got the axe?

JPMorgan & Co.'s (JPM) head natural gas trader has resigned after being asked to leave the bank, a person familiar with the situation said Thursday.

JPMorgan spokesman Brian Marchiony confirmed that Parker Drew, head of North American natural gas trading in New York, had left the firm in late November but he declined to comment on the reason for his departure.

Chief gas trader leaves JPMorgan over differences with firm [MarketWatch.com]

Today’s edition of Platt’s Energy Trader takes in depth look at how Citadel and JPMorgan took over Amaranth’s energy portfolio, turning Amaranth’s losses into profit. The basic outline of the story is that after gas prices sank and the spread between March 2007 and April 2007 natural gas futures shrank, Amaranth found itself in the troubling position of having to sell off assets, in part to meet the margin calls of its broker, which happened to be JP Morgan. Citadel and JP Morgan then teamed up and bought the portfolio at a steep discount—a move that some at the time thought looked like a bailout of Amaranth.

As it turned out, Amaranth collapsed anyway. It’s energy trading desk was at the heart of its operations, and after the meltdown it had little hope of going on. And the “bailout” was anything but an act of charity or an LTCM-style attempt to shore up market stability. JPMorgan and Citadel had their eyes keenly on the prize—profits. In a matter of weeks, JPMorgan turned around and sold it’s half of the Amaranth position to Citadel, pocketing a cool $750 million.

It must be nice to be a JPMorgan prime brokerage client. First they squeeze you on the margin call, then scoop up your assets and make $750 million by selling them. Wonder how Amaranth founder Nick Maounis feels about JPMorgan these days.

Here’s how Platt’s describes Citadel’s side of the bargain.

Citadel acknowledged that there is still substantial risk connected to the remaining Amaranth trades, and it set aside cash reserves to cover those risks. “These reserves reflect the illiquidity of the portfolio and the operational risks involved in the initial assumption of the portfolio,” Citadel said.

Citadel said it expects to have eliminated those risks, and the need to reserve funds, by the end of the year.

Which is to say, Citadel expects to have fully turned-around the trades that brought down a large and long-standing hedge fund in a matter of three-months. Like we said earlier, damn it’s good to be Ken Griffin.

JPMorgan may have hauled in as much as $750 million from the trades it took over from Amaranth, according to a story in Investment Dealers’ Digest. That’s pretty good for a position JPMorgan held for just a few weeks before handing it off to Citadel.

But even more importantly, the IDD story provides the outlines of what we’ve come to think of as the Amaranth Conspiracy Theory (ACT for short).

In its third-quarter earnings call, JPMorgan said it profited by taking over Amaranth's natural-gas positions. JPMorgan did not disclose how much it made, but according to one senior commodities executive at a JPMorgan rival, the bank earned $750 million on the trades. A JPMorgan spokesman declined to disclose the size of the bank's windfall.

JPMorgan earned money from Amaranth's losses by purchasing the hedge fund's natural gas positions when prices were under pressure and the fund was forced to liquidate to meet its margin requirements. When prices rebounded, JPMorgan reaped the benefits.

The eyebrow-raising part, for some observers, is that JPMorgan was prime broker to Amaranth and so was presumably the one doing the forcing. "I don't know if they did anything wrong, but when you pull the plug on a company and make a lot of money, it's a bit curious," says Berman (a lawyer for some Amaranth investors). The JPMorgan spokesman declined to give details on the dealings between Amaranth and the bank.

You get the idea: Amaranth didn't fall off a cliff. It was pushed.

Amaranth Fallout Could Hold Surprises [Investment Dealers' Digest subscription only]

The New York Sun reports on the ancient remains of that water utility company that nowadays goes around pretending to be a bank.

When construction workers peel back the pavement in lower Manhattan, it's like opening a skylight into the old New York — a place where water flowed through hollowed-out logs and the streets were crowded with ship builders, pottery makers, and tavern riffraff.

More than 3,000 objects have been found under Beekman Street between Pearl and Water streets, where archaeologist Alyssa Loorya has been monitoring a city construction site for the last two years.

The largest find was four pieces of the city's old wooden water mains. These mains are hollowedout yellow pine logs, which distributed water from a water reservoir just north of Chambers Street during the end of the 18th and early 19th centuries, a historian and author of "Water for Gotham," Gerard Koeppel, said.

The pieces are wider on one end and narrower on the other so that each section could fit into another, with a metal collar binding them together. Customers of the Manhattan Company, which eventually became the J.P. Morgan Chase Manhattan Bank, paid $5 a year per household with no more than five fireplaces to tap into the water mains. Another $1.25 was added onto the bill for each successive fireplace as a way to account for bigger households, Mr. Koeppel said.

Value added: We all know who JP Morgan was, right? So who was this Chase fellow? The "bank" gets its last name for Salmon Chase (pictured left). Now old Sam was the Abraham LIncoln's Treasury Secretary but he never had anything do to with the Chase National Bank. They just liked the name. Which strikes us as a bit tacky. It's as if one of these new boutique investment banks decided to name themselves The Paulson Bank.

Archaeologist Finds Pottery, Wood Water Mains Downtown [New York Sun]

Everyone talks about the Amaranth collapse and all the money lost. Of course, for certain folks at JP Morgan and Citadel, Amaranth represents something else entirely: the day they made lots and lots of money.

JPMorgan, the No. 3 U.S. bank, got a profit boost in the third quarter from the collapse of Amaranth, which unloaded its natural gas portfolio at a discount to the bank and Citadel Investment Group.

Bill Winters, co-chief executive of JPMorgan's investment banking business, said the bank has unique insight into the hedge fund industry because it has broad relationships with firms that have some $1 trillion in assets under management.

"We are not exposed from a credit perspective, materially, which allows us to respond quickly to opportunities when they come up," Winters said at Merrill Lynch's banking and financial services conference in New York.

"Amaranth was one obvious example of that," Winters said. "I imagine there will be others as we go through time where our ability to be on the inside, but not compromised, is extremely powerful."

JPMorgan exec sees more Amaranth-type opportunities [Reuters]

Has there been a news story about JP Morgan CEO Jamie Dimon in the last year that hasn’t mentioned his famous falling out with his mentor Sanford Weill? Dimon gets the CEO slot, and it’s all about getting fired by Weill. Dimon is “expected” to get the chairman of the board seat? Yep, more about Sandy. Now the members are voting him onto the board of directors at the the Federal Reserve, and sure enough it’s mostly about the famous break-up.

How is Dimon ever expected to move on if everyone keeps bringing up his ex?

Jamie Dimon may end up succeeding Sanford Weill after all -- at the New York Federal Reserve.

Eight years after Weill fired Dimon, his heir-apparent at Citigroup Inc., Dimon is slated to replace his former mentor as a director at the Fed's New York branch. Dimon, 50, is now chief executive officer of rival JPMorgan Chase & Co. Weill, 73, retired in April as chairman of Citigroup, the biggest U.S. bank. His term as a Fed director ends Dec. 31.

The Fed's members began casting their votes yesterday for Dimon and PepsiCo Inc. CEO Indra Nooyi, who's seeking reelection. Citigroup and JPMorgan, the third-biggest U.S. lender by assets, are members of the New York Fed, which helps supervise the industry and set monetary policy.

Dimon worked alongside Weill for 16 years, beginning as his assistant at American Express Co. The two native New Yorkers shared a knack for making profitable acquisitions and slashing expenses. Their working relationship ended when Weill ousted Dimon following a series of personal and policy disputes.

JPMorgan's Jamie Dimon Nominated to Replace Weill at NY Fed [Bloomberg]

Yeah. He’s still going to be running JPMorgan Chase when all is said and done but its got to be a headache to have to deal with another SEC investigation. This time it’s JPMorgan’s relationship with the Bysis group that’s caught the SEC’s attention. Bisys is the mutual fund administrator that’s paid millions in fines to the regulators. As it turns out, a fund owned by Bank One was mixed up with them, and JP Morgan inherited the problem when it picked up Bank One.

SEC investigation turns to J.P. Morgan Chase [New York TImes]

Jamie Dimon can cross one line off the legendary list of “people who owe me stuff” that he reportedly keeps in his breast pocket. Back in 2004, when William Harrison was negotiating with Dimon to acquire Bank One, which Dimon then ran, Harrison reportedly promised to step down as chairman in 2006 and hand the spot over to Dimon. As we noted just moments ago, this morning news broke that Harrison will retire at the end of the year and is expected to be succeeded by Dimon.

It’s mostly a formality at this point. The board of JP Morgan is packed with Dimon’s allies, and the lieutenants of Dimon are already running the place, according to most reports. But the news that Harrison will retire confirms the consolidation of the levers of power at the bank under a senior management largely brought in from the outside following the acquisition of Bank One by JP Morgan. Many of these folks came with Dimon from Bank One or worked with him when he was at Citigroup.

Or, as a source inside JP Morgan put it in a phone call with us this morning, "Finally, the greasers beat the socs! Ponyboy would be proud."

Bloomberg reports that Bill Harrison will retire from his post as Chairman of JPMorgan by the end of the year and "and expects** to hand the title to Chief Executive Officer Jamie Dimon". Dimon will presumably continue doing what he's been doing for the last few years: running the company as if Harrison wasn't there. Harrison's further involvement with JPMorgan will be limited to impersonating a media-and-financial-services analyst from Goldman during analyst conference calls and making up for lost JPM membership revenue at Augusta National by spending as much time there as possible. We're not sure what Harrison's departing words will be, but we'd imagine it'll be something like this:

Well, all I'm saying is that I want to look back and say that I did I the best I could while I was stuck in this place. Had as much fun as I could while I was stuck in this place. Played as hard as I could while I was stuck in this place... Dogged as many girls as I could while I was stuck in this place.

JPMorgan Chairman to Retire; Dimon Likely Successor [Bloomberg]

Amaranth is out of the energy trading business all together (at least for now), according to CNBC's David Faber. Its entire energy portfolio has been off-loaded to Citadel and JP Morgan Chase, Faber reported moments ago. Those assets are even now most likely working their way into the broader markets.

No word on whether Brian Hunter, who headed the fund's energy trading operations and is said to be responsible for the enormous losses it recently suffered, still has a job.

We've said before that Jamie Dimon has a bit of a "story" problem (as in, nothing's happening and he doesn't have one) but you could generally rest assured that he was off cutting costs somewhere because, well, that's what he does. But now it appears that JPMorgan's cost-cutting back (as in, Dimon's pay):

Executive pay has been a sensitive topic at JP Morgan, which awarded Chairman William Harrison and Chief Executive Jamie Dimon $22.3 million in compensation in 2005, representing increases of 39 percent and 47 percent from the year before. By comparison, JP Morgan's stock gained 1.7 percent in the period.

JPMorgan Investors Back Resolution It Opposed [Reuters]

Related: Jamie Dimon: Is There Any There There?

A reader charts the devolution of the JPMorgan summer analyst blog, based on changes to its tagline and a recent post indicating that it has only days to live:

The path to disillusionment:

April 29: As everyone knows, corporate finance is the most important part of every bank, especially JP Morgan. This group is dedicated to the corporate finance summer analysts at all JPM offices for Summer 2006. This summer is going to be an orgy of Excel-induced I-Banking pleasure. Goldman Who? Shiti-Bank.Lame-man Brothers. Deutsche-Bag Bank. No bank can compare.

May 01: As everyone knows, corporate finance is the most important part of every bank, especially JP Morgan. This group is dedicated to the corporate finance summer analysts at all JPM offices for Summer 2006. This summer is going to be an orgy of Excel-induced I-Banking pleasure.

May 10: This group is dedicated to the corporate finance summer analysts at all JPM offices for Summer 2006. This summer is going to be an orgy of Excel-induced I-Banking pleasure.

May 12: This group is dedicated to the corporate finance summer analysts at all JPM offices for Summer 2006.

May 14: "As you can see, the blog has been down-sized a bit. Seeing as we are starting in a couple of weeks, this blog will only be up for a few more days."

JPMorgan Summer Analysts 2006

We’ve been hearing rumors about the JP Morgan reorganization for a while now. Word is that JP Morgan has overturned the old regionally based organization in favor of a global structure based around asset specific groups.

Now Traders Magazine has the details.

…the new head of global equities, is Carlos Hernandez. Until recently, the executive was in charge of origination and distribution of equities and debt securities in North America.

The changes have affected at least two other top execs. Patrik Edsparr oversaw trading of both equities and fixed income securities in North America. He is now global head of rates. John Corrie, in charge of European equities, had his job eliminated.

Other changes are in store for the 1,000-person strong equities group. Hernandez is expected to announce a new managerial line-up that may or may not include a global head of cash equities, say sources.

Now, Scott Harrington is in charge of U.S. sales and sales trading while Jim Brett runs U.S. cash trading. Dan Keegan was in charge of sales trading and co-head of electronic services. He just resigned to take a post at ATD.

JP Morgan Reorganization Takes Global Strategy [Traders Magazine]

Dealbook reports that the Free Enterprise Action Fund wants to force J.P. Morgan Chase to explain its support for environmentalist measures such as greenhouse gas regulations. In March, the FEA Fund went after Goldman’s Henry Paulson for his connections to the Nature Conservancy.

No word yet on whether the J.P. Morgan folks have to drive around town in cramped hybrid cars like the lads and lasses at Goldman.

J.P. Morgan Faces Votes on Lobbying, Governance [Dealbook]

According to Dealbook, it takes two people to replace ex-M&A head Rob Kindler at JPMorgan. (Specifically, it takes Jimmy Elliot and Dag Skattum.) We know it's painful for you JPMorgan people**, so we've decided to commemorate the passing of the Kindler era with a very special t-shirt:

This is why God made CafePress.com.

** The ones of you who aren't blocked from reading DealBreaker, that is.
Rob Kindler Memorial t-shirt

It looks as if the summer CorpFin intern/"summer analyst" class at JPMorgan has banded together and formed a group blog. It's mostly anonymous, but one guy using the moniker Gordon Gekko (of course) has a Facebook profile that "about half the class has already accepted... as a friend." Facebook: less anonymous. (Note to the interns: if you must...) The blog description:

As everyone knows, corporate finance is the most important part of every bank, especially JP Morgan. This group is dedicated to the corporate finance summer analysts at all JPM offices for Summer 2006. This summer is going to be an orgy of Excel-induced I-Banking pleasure.

Goldman Who? Shiti-Bank.Lame-man Brothers. Deutsche-Bag Bank. No bank can compare.

We were just perusing the Vault.com IB message boards and buried under the pile of questions about internships, SAT scores and whether one can get a job at Carlyle as a managing director straight out of high school if one "knows someone" is a fairly extensive back-and-forth about what JPMorgan's next acquisition will be. The guesses revolve mostly around retail expansion, though someone throws in the Morgan Stanley canard for good measure.

Some of the names floated:
SunTrust (the usual name floated)
Wachovia (ditto)
USB (west coast expansion is attractive, but Grundhofers probably wouldn't sell)
PNC (nice east coast footprint but not a big enough deal for Dimon's ego),
Wells Fargo (deposit limit problems)
Washington Mutual (possible deposit limit problems, S&L component that complicates things)

Someone points out that Dimon's ostensible financial superstore strategy is exactly what Citi seems to be moving away from (see Legg Mason), which is ironic, unless Dimon's logic is that he can do Citi better than Citi does Citi. All we know is that Dimon doesn't have much of a story right now and he needs one. (And we need more material, so we're secretly hoping for that dark horse MS merger.)

William B. Harrison has been Chairman of the Board of JPMorgan Chase since December 31, 2005, parcel to the merger agreement whereby Bank One took over JPMorgan without seeming to do so. Mr. Harrison will be chronicling his experiences in retirement in periodic letters to Dealbreaker's Trip Paulson. Mr. Harrison has no awareness of his involvement in these letters.

Dear Trip,

A big bucket of thanks for your email last week. Gosh it's good to hear that the swelling has gone down, and that the dripping has stopped. In my experience there ain't just about a damn thing that a good steak and some vintage port can't fix, and I really do mean that.

And don't worry about how you got it or who gave it to you. What matters is that you had a great trip to Thailand, and now you're better.

Barbara is down in Palm Beach for the week, at the big pastel convention, and frankly I'm glad to have her out of the house. I woke up just a little past noon yesterday, and had our maid Lucia bring me my breakfast in bed. She makes a mean French toast! I grow fonder and fonder of her every day, Roger.

I know what you said, that she is sixty five and the mother of a large extended family, all of whom depend upon her monthly remittances to stay above the poverty line. I do understand that. But it gets so lonely here some mornings and then she brings me pancakes made in the shape of my initials.

And I can't help but want to be held by her.

"Lucia," I say, and hold out my arms. "Why don't you curl up, and I'll tell you about the time that I got paid twenty million dollars for paying forty billion dollars for nothing at all..." Most women love that story. She just makes the sign of the cross and scurries away. You know what?

That's when I want her most badly.

Dr. Shapiro says it's a fixation, because my mother never loved me and Lucia reminds me of my wetmaid. But I keep tellin' him that I can't but hardly ever remember my wetmaid, because I was just a little one.

He just smiles and says, 'Exactly.' I say, "Exactly what?" And he says, "Who are you really fooling here Bill?" I say, "Golly, I don't know, that' s why I asked you." And then he looks at me and says "Exactly," again. It makes my back hurt.

Well, I've got a Merck board meeting tonight. Or maybe it's a Pfizer. I don't know. But the driver's outside and I've gotta get going. Oh, and don't worry about my back. I'm on this Vioxx stuff now and have never felt better. Damned if it doesn't go down like sugar with a little bit of bourbon!

Your friend,

Bill

From Fortune's Jamie Dimon profile:

Dimon became president of J.P. Morgan Chase (Research) in mid-2004 when it acquired Bank One, where he had been CEO. Soon after, he convened an emergency meeting and ripped into his new colleagues for "letting pay get totally out of hand." ... Among the examples that set him off: Regional bank managers at J.P. Morgan earned around $2 million -- five times the $400,000 that comparable Bank One people made. Morgan's human resources chief was pocketing better than $5 million. Outraged, Dimon announced he was slashing comp for hundreds of staff positions by 20% to 50% over two years. "I'd tell people they were way overpaid," Dimon recalls, "and guess what? They already knew it." The kicker: Most of the managers stayed on despite the cuts.

The real kicker: most of the managers had no choice but to stay on despite the cuts. But Dimon's historically a cost-cutter. (Goodbye gym, goodbye fresh flowers, goodbye bonus...) Top line revenue growth, not so much.

In This Corner! The Contender [Fortune]