JPMorgan Chase announced a $2 billion loss from trading financial derivatives in its Chief Investment Office in London. The losses occurred when traders placed large bets on credit default swap indexes to hedge previous positions, but the new bets introduced unaccounted risks and backfired. Regulators are investigating the trades and their implications for financial reform regulations around banks' trading and hedging activities. The losses also renewed debates around how much risk big banks should take.
The document summarizes the case of JPMorgan's "London Whale" trading losses. It describes how JPMorgan's Synthetic Credit Portfolio (SCP) grew significantly from 2011-2012 as it invested in both high-yield and investment grade credit derivatives. Large losses occurred in early 2012 as investment grade positions performed poorly and could not be offset by gains in high-yield. In response, risk metrics were adjusted and limits increased to hide mounting problems. The SCP continued growing in a position it could not exit from. The summary warns that Citigroup must carefully monitor its growing credit derivatives portfolio and avoid conflicts of interest to prevent a similar catastrophe.
In late 2011, JPMorgan Chase told its Chief Investment Office (CIO) to reduce risky assets. To offset this, the CIO started making large derivative trades that grew in complexity and size over time, dwarfing the original risk. By April 2012, losses had started to accumulate from these trades, reaching an estimated $2 billion by May. By July, JPMorgan announced the loss had grown to $5.8 billion from trades involving credit default swaps made by trader Bruno Iksil, nicknamed the "London Whale". While Iksil was primarily responsible, lack of oversight from CIO head Ina Drew and senior management allowed the risky trading strategy and positions to grow unchecked.
The document summarizes the bankruptcy of Lehman Brothers, the largest bankruptcy in history. It provides background on Lehman Brothers and how they grew to become a major global financial firm primarily focused on real estate and mortgage-backed securities. It then describes how Lehman Brothers hid over $50 billion in loans, massively overleveraged themselves, and ultimately went bankrupt during the financial crisis in 2008. Their bankruptcy had massive ripple effects globally and cost millions of people their jobs and investments. Investigations into their accounting practices continued after the bankruptcy.
J.P. Morgan Chase & Co. is an American multinational banking corporation founded in 2000 with $2.2 trillion in assets and 250,000 employees operating in 150 countries. The company aims to strengthen communities through expanding access to capital, leadership, and leveraging resources. Jamie Dimon serves as Chairman and CEO, overseeing diversity recruiting efforts led by Mark Settles. The company hosts "Lunch and Learns" with top executives and has various employee networking groups to attract, retain, and develop a diverse talent pool. J.P. Morgan Chase strives to link management rewards to diversity progress and build a diverse pipeline through universities and industry groups.
Impact of real earnings management on firms performanceAhmed Selim
Earnings management refers to practices used by company managers to misrepresent financial performance or alter reported income. There are several motives for and techniques of earnings management, including income smoothing and using discretionary estimates to manipulate reported earnings. Earnings management can be done through accrual manipulation or real activities manipulation like reducing discretionary expenses or timing asset sales. While some studies find earnings management can positively impact short-term measures like stock price, most research shows it adversely affects long-term financial performance indicators like return on assets. Case studies on companies like GE and Samsung provide examples of earnings management techniques.
Washington Mutual (WaMu) was once the largest savings and loan in the US but suffered a crisis due to risky subprime lending and acquisitions. Key events were acquiring subprime lenders Long Beach Financial in 1999 and Providian in 2005, becoming overly dependent on unstable funding. Earnings deteriorated as defaults rose in 2007-2008 during the financial crisis. The FDIC seized WaMu in 2008, and JPMorgan Chase acquired its assets for $1.9 billion, wiping out stockholders. The crisis showed the dangers of unstable growth through subprime lending, poor acquisitions, and liability-dependent funding models.
The document discusses liquidity risk and its management in financial institutions. It defines liquidity risk and outlines some key methods to measure it, including gap analysis, liquidity ratios, net loans to assets ratio, and loans to deposits ratio. It then discusses important principles of managing liquidity risk, such as establishing corporate governance and policies, determining risk limits, internal controls, stress testing, contingency funding planning, and meeting regulatory reporting requirements. Effective liquidity risk management is important for financial institutions to reduce costs associated with liquidity shortfalls.
Lehman Brothers and Corporate Governance failure and Corporate Governance f...Adnan Qatinah
Lehman Brothers filed for bankruptcy in September 2008 with $639 billion in assets and $619 billion in debt, marking the largest bankruptcy filing in U.S. history. The document analyzes the causes of Lehman Brothers' failure, including corporate governance failures such as weak risk management, issues with the board of directors, problematic compensation schemes, and flawed nomination committees. Technical failures and other market factors also contributed to Lehman Brothers' collapse.
The document summarizes the case of JPMorgan's "London Whale" trading losses. It describes how JPMorgan's Synthetic Credit Portfolio (SCP) grew significantly from 2011-2012 as it invested in both high-yield and investment grade credit derivatives. Large losses occurred in early 2012 as investment grade positions performed poorly and could not be offset by gains in high-yield. In response, risk metrics were adjusted and limits increased to hide mounting problems. The SCP continued growing in a position it could not exit from. The summary warns that Citigroup must carefully monitor its growing credit derivatives portfolio and avoid conflicts of interest to prevent a similar catastrophe.
In late 2011, JPMorgan Chase told its Chief Investment Office (CIO) to reduce risky assets. To offset this, the CIO started making large derivative trades that grew in complexity and size over time, dwarfing the original risk. By April 2012, losses had started to accumulate from these trades, reaching an estimated $2 billion by May. By July, JPMorgan announced the loss had grown to $5.8 billion from trades involving credit default swaps made by trader Bruno Iksil, nicknamed the "London Whale". While Iksil was primarily responsible, lack of oversight from CIO head Ina Drew and senior management allowed the risky trading strategy and positions to grow unchecked.
The document summarizes the bankruptcy of Lehman Brothers, the largest bankruptcy in history. It provides background on Lehman Brothers and how they grew to become a major global financial firm primarily focused on real estate and mortgage-backed securities. It then describes how Lehman Brothers hid over $50 billion in loans, massively overleveraged themselves, and ultimately went bankrupt during the financial crisis in 2008. Their bankruptcy had massive ripple effects globally and cost millions of people their jobs and investments. Investigations into their accounting practices continued after the bankruptcy.
J.P. Morgan Chase & Co. is an American multinational banking corporation founded in 2000 with $2.2 trillion in assets and 250,000 employees operating in 150 countries. The company aims to strengthen communities through expanding access to capital, leadership, and leveraging resources. Jamie Dimon serves as Chairman and CEO, overseeing diversity recruiting efforts led by Mark Settles. The company hosts "Lunch and Learns" with top executives and has various employee networking groups to attract, retain, and develop a diverse talent pool. J.P. Morgan Chase strives to link management rewards to diversity progress and build a diverse pipeline through universities and industry groups.
Impact of real earnings management on firms performanceAhmed Selim
Earnings management refers to practices used by company managers to misrepresent financial performance or alter reported income. There are several motives for and techniques of earnings management, including income smoothing and using discretionary estimates to manipulate reported earnings. Earnings management can be done through accrual manipulation or real activities manipulation like reducing discretionary expenses or timing asset sales. While some studies find earnings management can positively impact short-term measures like stock price, most research shows it adversely affects long-term financial performance indicators like return on assets. Case studies on companies like GE and Samsung provide examples of earnings management techniques.
Washington Mutual (WaMu) was once the largest savings and loan in the US but suffered a crisis due to risky subprime lending and acquisitions. Key events were acquiring subprime lenders Long Beach Financial in 1999 and Providian in 2005, becoming overly dependent on unstable funding. Earnings deteriorated as defaults rose in 2007-2008 during the financial crisis. The FDIC seized WaMu in 2008, and JPMorgan Chase acquired its assets for $1.9 billion, wiping out stockholders. The crisis showed the dangers of unstable growth through subprime lending, poor acquisitions, and liability-dependent funding models.
The document discusses liquidity risk and its management in financial institutions. It defines liquidity risk and outlines some key methods to measure it, including gap analysis, liquidity ratios, net loans to assets ratio, and loans to deposits ratio. It then discusses important principles of managing liquidity risk, such as establishing corporate governance and policies, determining risk limits, internal controls, stress testing, contingency funding planning, and meeting regulatory reporting requirements. Effective liquidity risk management is important for financial institutions to reduce costs associated with liquidity shortfalls.
Lehman Brothers and Corporate Governance failure and Corporate Governance f...Adnan Qatinah
Lehman Brothers filed for bankruptcy in September 2008 with $639 billion in assets and $619 billion in debt, marking the largest bankruptcy filing in U.S. history. The document analyzes the causes of Lehman Brothers' failure, including corporate governance failures such as weak risk management, issues with the board of directors, problematic compensation schemes, and flawed nomination committees. Technical failures and other market factors also contributed to Lehman Brothers' collapse.
The document discusses money markets and the various securities traded within them. Money markets provide short-term funding for participants and a place for investors to store excess cash. Major securities discussed include Treasury bills, certificates of deposit, commercial paper, and repurchase agreements. These instruments vary in issuers, maturity length, and liquidity. Money markets help corporations and governments manage mismatches between cash inflows and outflows.
The 30-year bond has more interest rate risk.
37
Interest Rate Risk
- Longer-term bonds have greater interest rate risk than
shorter-term bonds because their prices are more
sensitive to changes in interest rates.
- When interest rates rise, the price of an existing bond
falls more for longer-term bonds than for shorter-term
bonds.
- When interest rates fall, the price of an existing bond
rises more for longer-term bonds than for shorter-term
bonds.
- Therefore, longer-term bonds have greater price volatility
and interest rate risk.
38
Default Risk
- Default risk is the risk that the issuer will not repay the
CVA and DVA adjustments are applied to uncollateralized over-the-counter derivatives to account for expected counterparty credit losses (CVA) and the bank's own credit risk (DVA). The CVA calculation considers exposure at default, probability of default based on credit default swap spreads or internal ratings, and loss given default estimated from recovery rates. The adjustments are sensitive to changes in credit spreads and market volatility that impact uncollateralized exposure amounts over time.
This document provides an overview of bond valuation and interest rate sensitivity. It begins with an introduction to bonds and bond markets, including different types of bonds such as zero-coupon bonds and coupon bonds. It then discusses how to value zero-coupon bonds and coupon bonds using present value calculations. The document also examines how bond prices are inversely related to interest rates and how duration can be used to measure a bond's interest rate sensitivity.
Managing transaction exposure and economic exposureMaica Batiancela
This document discusses foreign exchange exposure and its management. It defines three types of exposure - translation, transaction, and economic - and describes techniques for managing each type. Transaction exposure involves actual cash flows and can be hedged using forwards, futures, options, swaps and cross-hedging. Economic exposure is harder to hedge but diversification and strategic operational changes can help. While derivatives are commonly used, some companies have experienced large losses, so effective risk management is important.
- Bond valuation involves discounting future cash flows from bonds like coupon payments and principal repayment to calculate the present value, which is the bond price.
- Zero-coupon bonds pay the full face value at maturity with no interim coupon payments, while coupon bonds pay regular interest payments and repay the principal.
- Bond prices are inversely related to interest rates - they fall when rates rise and vice versa. Longer-term bonds are more sensitive to interest rate changes.
The document summarizes key events and causes of the 2007-2009 financial crisis. It notes that housing prices increased sharply until 2005 but then leveled off and declined, default and foreclosure rates increased in 2006, and major investment banks collapsed in 2008. The crisis was sparked by the decline in US housing prices, which reduced the value of mortgage-backed securities and threatened the solvency of financial institutions due to leverage. The crisis put the US and world economies into a deep recession, the largest since the Great Depression.
Short presentation on fall of the 4th biggest investment bank firm in United States during the period of financial crisis in 2008 which ultimately started recession in Unites States Of America and subsequent impact on whole world of economy.
The document provides an overview of the downfall of Lehman Brothers, which filed for Chapter 11 bankruptcy in September 2008. It discusses several factors that contributed to Lehman Brothers' collapse, including the US housing bubble and subprime mortgage crisis, Lehman's high leverage and reliance on short-term funding, and flaws in risk management practices. After Lehman filed for bankruptcy, parts of its business were acquired by Barclays and Nomura. The collapse had widespread effects on financial markets and the global economy.
WorldCom announced in June 2002 that it intended to restate its financial statements for 2001 and Q1 2002, revealing $3.8 billion in improper accounting transfers from line cost expenses to asset accounts. Less than a month later, WorldCom filed for Chapter 11 bankruptcy. It was subsequently discovered that an additional $3.8 billion in earnings had been improperly reported from 1999-Q1 2002. The fraud was carried out through improper reductions of line costs and false revenue adjustments. Key players involved included CEO Bernard Ebbers and CFO Scott Sullivan. The toxic culture and lack of board oversight enabled the massive accounting fraud.
This document provides an overview of bond valuation and the bond market. It discusses key bond features and valuation concepts, including how bond prices are determined by expected future cash flows and interest rates. Government bonds such as Treasury securities are described as well as corporate bonds, which have greater default risk. Bond ratings are also covered, with higher rated bonds seen as less risky. The effects of inflation and the term structure of interest rates on bond yields are summarized.
This document discusses approaches to calculating the international cost of capital. It notes that while the capital asset pricing model (CAPM) is commonly used, it provides biased estimates in emerging markets due to unique country risks. The document evaluates 12 different models and recommends using a company's domestic cost of capital plus a country risk premium in basis points estimated through quantitative crisis signal and country rating models. It stresses the country premium should account for cyclical, exchange rate, solvency, political and business environment risks over various time horizons.
This document provides information about mortgage-backed securities and the securitization process. It defines key terms like mortgages, MBS, and special purpose vehicles. It describes the major players in securitization like borrowers, originators, trustees, servicers, issuers, investors, and rating agencies. It explains how MBS are issued through an SPV and the types of MBS like pass-through, stripped, and collateralized mortgage obligations. Finally, it outlines regulations and guidelines from the SECP and SBP for entities involved in securitization.
Lehman Brothers was considered "too big to fail" but failed on September 15, 2008, marking the largest bankruptcy filing in U.S. history. The document outlines Lehman Brothers' history from 1850 to 2008, including its expansion through acquisitions. It discusses the factors that led to Lehman Brothers' collapse, including losses from the subprime mortgage crisis, high leverage, and liquidity issues. The collapse had widespread impacts, including job losses, falling stock prices, and tightened credit. Lessons included debunking the myth that a company could be "too big to fail" and the need for prudent risk management and regulations.
Ch 01 Multinational Financial Management - An Over view (MTM).pptshomudrokotha
This document provides an overview of multinational financial management. It discusses several key topics:
1) Theories for why multinational corporations (MNCs) engage in international business, including comparative advantage, imperfect markets, and product cycle theories.
2) Methods MNCs use to conduct international business, such as international trade, licensing, franchising, joint ventures, acquisitions, and establishing foreign subsidiaries.
3) Challenges of managing an MNC, including agency problems that arise from conflicts between managers' and shareholders' goals, and how management structure (centralized vs decentralized) affects agency costs.
4) Models for valuing an MNC, which
The document provides a detailed timeline of major financial crises from the 3rd century to the 21st century. It then discusses the causes and impacts of the late 2000s Global Financial Crisis, including the subprime mortgage crisis in the United States, the plummeting of stock markets and housing prices globally, and increased unemployment and poverty worldwide. Key factors that contributed to the crisis are identified as deregulation of financial markets, complex financial innovations, low interest rates, and risky lending practices like subprime mortgages.
Read this Sample Report on "A Study on Subprime Mortgage Crisis", written by a professional writer of Instant Assignment Help. We offer free assignment samples to the students drafted by academic experts. We provide top quality assignments to the scholars which helps them in achieving perfect grades in their academics. If you are facing any problem in writing your assignments then contact us to get the best assignment help online in UK. Place your order now to get upto 50% discount + 5% cash back.
This document provides solutions to end-of-chapter questions for a chapter on interest rate and currency swaps. It includes answers explaining the difference between a swap broker and dealer, the necessary condition for a fixed-for-floating interest rate swap, basic motivations for currency swaps, and how comparative advantage relates to the currency swap market. It also summarizes the various risks confronting swap dealers and some variants of basic interest rate and currency swaps. Sample problems are provided showing how companies can use swaps to lower their borrowing costs.
JP Morgan & Chase: IT Strategy and Key Success factorsAbhiJeet Singh
JPMorgan Chase is a large U.S. banking and financial services company formed in 2000 through the merger of JPMorgan & Co. and Chase Manhattan Bank. The document discusses JPMorgan Chase's key strengths including its large capital base, strong domestic presence, and mature brand. It analyzes the company's SWOT and describes several important IT applications developed in-house like Athena, CBB, and ERTRS that support its business operations. JPMorgan Chase invests heavily in IT, developing customized solutions and pursuing automation to gain cost advantages and efficiencies.
J.P. Morgan has over 200 years of history as a financial institution. It has grown through mergers and acquisitions, including forming from the merger of Chase Manhattan Corporation and J.P. Morgan & Co. in 2000. J.P. Morgan played an important role during financial crises like the 2008 crisis, and has historically shown leadership. It is now the largest bank in the U.S. by assets, providing a wide range of financial services globally.
The document discusses money markets and the various securities traded within them. Money markets provide short-term funding for participants and a place for investors to store excess cash. Major securities discussed include Treasury bills, certificates of deposit, commercial paper, and repurchase agreements. These instruments vary in issuers, maturity length, and liquidity. Money markets help corporations and governments manage mismatches between cash inflows and outflows.
The 30-year bond has more interest rate risk.
37
Interest Rate Risk
- Longer-term bonds have greater interest rate risk than
shorter-term bonds because their prices are more
sensitive to changes in interest rates.
- When interest rates rise, the price of an existing bond
falls more for longer-term bonds than for shorter-term
bonds.
- When interest rates fall, the price of an existing bond
rises more for longer-term bonds than for shorter-term
bonds.
- Therefore, longer-term bonds have greater price volatility
and interest rate risk.
38
Default Risk
- Default risk is the risk that the issuer will not repay the
CVA and DVA adjustments are applied to uncollateralized over-the-counter derivatives to account for expected counterparty credit losses (CVA) and the bank's own credit risk (DVA). The CVA calculation considers exposure at default, probability of default based on credit default swap spreads or internal ratings, and loss given default estimated from recovery rates. The adjustments are sensitive to changes in credit spreads and market volatility that impact uncollateralized exposure amounts over time.
This document provides an overview of bond valuation and interest rate sensitivity. It begins with an introduction to bonds and bond markets, including different types of bonds such as zero-coupon bonds and coupon bonds. It then discusses how to value zero-coupon bonds and coupon bonds using present value calculations. The document also examines how bond prices are inversely related to interest rates and how duration can be used to measure a bond's interest rate sensitivity.
Managing transaction exposure and economic exposureMaica Batiancela
This document discusses foreign exchange exposure and its management. It defines three types of exposure - translation, transaction, and economic - and describes techniques for managing each type. Transaction exposure involves actual cash flows and can be hedged using forwards, futures, options, swaps and cross-hedging. Economic exposure is harder to hedge but diversification and strategic operational changes can help. While derivatives are commonly used, some companies have experienced large losses, so effective risk management is important.
- Bond valuation involves discounting future cash flows from bonds like coupon payments and principal repayment to calculate the present value, which is the bond price.
- Zero-coupon bonds pay the full face value at maturity with no interim coupon payments, while coupon bonds pay regular interest payments and repay the principal.
- Bond prices are inversely related to interest rates - they fall when rates rise and vice versa. Longer-term bonds are more sensitive to interest rate changes.
The document summarizes key events and causes of the 2007-2009 financial crisis. It notes that housing prices increased sharply until 2005 but then leveled off and declined, default and foreclosure rates increased in 2006, and major investment banks collapsed in 2008. The crisis was sparked by the decline in US housing prices, which reduced the value of mortgage-backed securities and threatened the solvency of financial institutions due to leverage. The crisis put the US and world economies into a deep recession, the largest since the Great Depression.
Short presentation on fall of the 4th biggest investment bank firm in United States during the period of financial crisis in 2008 which ultimately started recession in Unites States Of America and subsequent impact on whole world of economy.
The document provides an overview of the downfall of Lehman Brothers, which filed for Chapter 11 bankruptcy in September 2008. It discusses several factors that contributed to Lehman Brothers' collapse, including the US housing bubble and subprime mortgage crisis, Lehman's high leverage and reliance on short-term funding, and flaws in risk management practices. After Lehman filed for bankruptcy, parts of its business were acquired by Barclays and Nomura. The collapse had widespread effects on financial markets and the global economy.
WorldCom announced in June 2002 that it intended to restate its financial statements for 2001 and Q1 2002, revealing $3.8 billion in improper accounting transfers from line cost expenses to asset accounts. Less than a month later, WorldCom filed for Chapter 11 bankruptcy. It was subsequently discovered that an additional $3.8 billion in earnings had been improperly reported from 1999-Q1 2002. The fraud was carried out through improper reductions of line costs and false revenue adjustments. Key players involved included CEO Bernard Ebbers and CFO Scott Sullivan. The toxic culture and lack of board oversight enabled the massive accounting fraud.
This document provides an overview of bond valuation and the bond market. It discusses key bond features and valuation concepts, including how bond prices are determined by expected future cash flows and interest rates. Government bonds such as Treasury securities are described as well as corporate bonds, which have greater default risk. Bond ratings are also covered, with higher rated bonds seen as less risky. The effects of inflation and the term structure of interest rates on bond yields are summarized.
This document discusses approaches to calculating the international cost of capital. It notes that while the capital asset pricing model (CAPM) is commonly used, it provides biased estimates in emerging markets due to unique country risks. The document evaluates 12 different models and recommends using a company's domestic cost of capital plus a country risk premium in basis points estimated through quantitative crisis signal and country rating models. It stresses the country premium should account for cyclical, exchange rate, solvency, political and business environment risks over various time horizons.
This document provides information about mortgage-backed securities and the securitization process. It defines key terms like mortgages, MBS, and special purpose vehicles. It describes the major players in securitization like borrowers, originators, trustees, servicers, issuers, investors, and rating agencies. It explains how MBS are issued through an SPV and the types of MBS like pass-through, stripped, and collateralized mortgage obligations. Finally, it outlines regulations and guidelines from the SECP and SBP for entities involved in securitization.
Lehman Brothers was considered "too big to fail" but failed on September 15, 2008, marking the largest bankruptcy filing in U.S. history. The document outlines Lehman Brothers' history from 1850 to 2008, including its expansion through acquisitions. It discusses the factors that led to Lehman Brothers' collapse, including losses from the subprime mortgage crisis, high leverage, and liquidity issues. The collapse had widespread impacts, including job losses, falling stock prices, and tightened credit. Lessons included debunking the myth that a company could be "too big to fail" and the need for prudent risk management and regulations.
Ch 01 Multinational Financial Management - An Over view (MTM).pptshomudrokotha
This document provides an overview of multinational financial management. It discusses several key topics:
1) Theories for why multinational corporations (MNCs) engage in international business, including comparative advantage, imperfect markets, and product cycle theories.
2) Methods MNCs use to conduct international business, such as international trade, licensing, franchising, joint ventures, acquisitions, and establishing foreign subsidiaries.
3) Challenges of managing an MNC, including agency problems that arise from conflicts between managers' and shareholders' goals, and how management structure (centralized vs decentralized) affects agency costs.
4) Models for valuing an MNC, which
The document provides a detailed timeline of major financial crises from the 3rd century to the 21st century. It then discusses the causes and impacts of the late 2000s Global Financial Crisis, including the subprime mortgage crisis in the United States, the plummeting of stock markets and housing prices globally, and increased unemployment and poverty worldwide. Key factors that contributed to the crisis are identified as deregulation of financial markets, complex financial innovations, low interest rates, and risky lending practices like subprime mortgages.
Read this Sample Report on "A Study on Subprime Mortgage Crisis", written by a professional writer of Instant Assignment Help. We offer free assignment samples to the students drafted by academic experts. We provide top quality assignments to the scholars which helps them in achieving perfect grades in their academics. If you are facing any problem in writing your assignments then contact us to get the best assignment help online in UK. Place your order now to get upto 50% discount + 5% cash back.
This document provides solutions to end-of-chapter questions for a chapter on interest rate and currency swaps. It includes answers explaining the difference between a swap broker and dealer, the necessary condition for a fixed-for-floating interest rate swap, basic motivations for currency swaps, and how comparative advantage relates to the currency swap market. It also summarizes the various risks confronting swap dealers and some variants of basic interest rate and currency swaps. Sample problems are provided showing how companies can use swaps to lower their borrowing costs.
JP Morgan & Chase: IT Strategy and Key Success factorsAbhiJeet Singh
JPMorgan Chase is a large U.S. banking and financial services company formed in 2000 through the merger of JPMorgan & Co. and Chase Manhattan Bank. The document discusses JPMorgan Chase's key strengths including its large capital base, strong domestic presence, and mature brand. It analyzes the company's SWOT and describes several important IT applications developed in-house like Athena, CBB, and ERTRS that support its business operations. JPMorgan Chase invests heavily in IT, developing customized solutions and pursuing automation to gain cost advantages and efficiencies.
J.P. Morgan has over 200 years of history as a financial institution. It has grown through mergers and acquisitions, including forming from the merger of Chase Manhattan Corporation and J.P. Morgan & Co. in 2000. J.P. Morgan played an important role during financial crises like the 2008 crisis, and has historically shown leadership. It is now the largest bank in the U.S. by assets, providing a wide range of financial services globally.
The document discusses a case study of a leading global financial firm's use of technology. It has a large turnover and employee base across asset management, commercial banking, investment banking, private banking, and securities/treasury services. The firm implemented the Eclipse open-source platform called OneBench to standardize application development and enable rapid deployment. This provided benefits like reusability, scalability, reduced development times, and cost savings. Potential issues discussed include adapting to changes in the competitive financial services landscape and ensuring the technology initiatives can scale with business needs.
The document summarizes a presentation on Risk Control Self Assessment (RCSA). It discusses identifying risks for RCSA, why RCSA is used, types of RCSA, reporting RCSA results through heat maps, and making the RCSA process effective through consistency, discussion with stakeholders, and regular reporting to management. The presentation was delivered by Kumar Natarajan at the 4th Annual Operational Risk Management Forum in Dubai, 2012.
Economic and financial crises a fundamental analysis from Islamic financial...Shameel Sajjad
This presentation was made at Govt. Arts and Science College Malappuram and MES Arts and Science College, Kalathode, Chathamangalam, Kozhikode. The presentation was made in the seminars conducted with the sponsorship of Indian Association of Islamic Economics (IAFIE) as a part of its annual agenda for the year 2014 - 2015.
This document provides an overview and background on J.P. Morgan Chase & Co. It discusses how the rise of banking technology presents both opportunities and threats for large banks. Specifically, it notes that increased mobile and digital banking may negatively impact branch closures and market share. The research paper aims to analyze how J.P. Morgan Chase can adapt to changes in banking technology through a SWOT analysis and recommendations. It hypothesizes that technological advancements will harm large banks like J.P. Morgan Chase if they do not embrace changes in how consumers use technology for banking.
This document is the capstone project of Jill Sydney Madsen submitted for a Master's degree in Education from Hamline University. The project examines saying "goodbye to teaching tolerance and hello to equity and social justice" through a critical analysis of factors needed for an anti-bias early childhood education program. Madsen conducted research at Community Child Care Center including staff and family surveys and classroom observations. The paper defines key terms, reviews literature on teaching tolerance and anti-bias education, outlines the methodology, presents results on a continuum from tolerance to equity/justice, and concludes with recommendations. The goal is to distinguish anti-bias education grounded in equity and social justice from a tolerance approach.
JPMorgan Chase acquired Bear Stearns in 2010. The document lists three notable properties - the former Bear Stearns headquarters at 383 Madison Avenue in New York City, the JPMorgan Chase Tower at 270 Park Avenue in New York City, and the Chase Tower in the Chicago Loop in Chicago. It appears to be presenting information about properties related to the 2010 acquisition of Bear Stearns by JPMorgan Chase.
Bank of America acquired MBNA for $35 billion, making it the largest issuer of credit cards in the US, surpassing JPMorgan Chase. The strategic plan aims to increase market share, customer base, and profitability by maintaining strong customer loyalty through effective communication, internet banking education, and constant customer service monitoring.
A detailed analysis on one of the biggest data breaches in history...What JP Morgan Chase & Co did wrong and proposed mitigation techniques. The data breach at J.P. Morgan Chase is yet another example of how our most sensitive personal information is in danger.
.
Moody's Credit Ratings & the Subprime Mortgage MeltdownKoyi Tan
Moody's ratings of mortgage-backed securities contributed to the 2008 financial crisis. Moody's underestimated the risks of subprime mortgages and assigned high credit ratings to securities backed by subprime mortgages. This misled investors and allowed the flawed mortgage market to grow substantially. Multiple parties share blame for the crisis, but Moody's inaccurate ratings were a key factor that enabled the crisis. New regulations were implemented through the Dodd-Frank Act, but it did not fully address the root causes and has been criticized for favoring large banks over other entities.
JP Morgan Chase developed the OneBench platform using the open source Eclipse framework to improve efficiency in application development. OneBench allows developers to build applications in hours rather than weeks. This has lowered costs and freed resources to focus on new projects. By adopting an open source approach, JP Morgan Chase has established a reusable and customizable platform that supports enhanced security, interoperability, and scalability. Some risks remain in long-term support costs and potential job losses from improved efficiency. On balance, the use of Eclipse and creation of OneBench has helped JP Morgan Chase achieve its goals.
1. The Business Model of Banking and how institutions will have to adapt themselves to the new regulatory environment
2. Investments in capital and human resources
3. Changes/improvements to the Banks’ technology capacity and structure
4. Business Profitability, Staff Compensation and Competitiveness
London is the capital city of England and the United Kingdom, with a population of over 14 million people. It was founded by the Romans in 40 AD and named Londinium. Some of London's most famous landmarks include Big Ben, Buckingham Palace, the Tower of London, Westminster Abbey, Hyde Park, and Trafalgar Square. London has a well-developed public transport system including the iconic red double decker buses and the Underground, known locally as the "Tube".
JP Morgan is one of the oldest and largest financial institutions in the world. Through numerous mergers and acquisitions over the past few decades, JP Morgan has expanded its operations and services. It now offers a wide range of banking and financial services to corporations, governments, institutions and individuals globally. JP Morgan generates most of its revenue from the US but has a growing international business as well.
This document provides an analysis of JPMorgan Chase & Co., including an overview of its business segments and the risks it faces. JPMorgan Chase has four main business segments: consumer and community banking, corporate and investment banking, commercial banking, and asset management. It faces various risks like credit, market, operational, and reputational risk. The document also discusses how JPMorgan Chase measures and protects itself against these risks, as well as the various regulators that oversee the company.
The report recommends a HOLD rating for JPMorgan Chase & Co. (JPM) stock. While JPM has outperformed expectations in recent quarters and should benefit from economic growth, it also faces regulatory headwinds and risks from complex assets and liabilities on and off its balance sheet. The report forecasts 4-6% revenue and earnings growth for JPM over the next few years, but maintains a HOLD rating due to concerns around its risk profile and ability to maintain profitability under new regulations.
Madison Street Capital Investment Bank alternative lending white paper kdcunha
Alternative lending sources provide capital options for lower to middle market companies that are often deemed "unbankable" by commercial banks. These alternative lenders include specialty finance companies, credit hedge funds, business development companies, mezzanine lenders, private equity funds, and special situation funds. While alternative lending can fill capital gaps, the costs are typically higher, including high interest rates in the teens to low 20s, restrictive covenants, equity components, high fees, and personal guarantees. However, for some businesses, the rewards of accessing capital to pursue opportunities outweigh the costs of doing nothing or the inability to access traditional bank loans.
Danish pension fund Danica is considering doubling its allocation to alternative investments such as hedge funds and private equity from $1.5 billion to $3 billion over the next few years. Currently Danica's alternative portfolio consists mainly of private equity and infrastructure funds, with $350 million in hedge funds spread across 10 single-manager funds and one multi-manager fund. The pension fund takes an opportunistic approach to hedge funds, targeting equity-like returns with half the volatility. Wells Fargo is making inroads in prime brokerage, debuting at #14 in a ranking led by Goldman Sachs, Morgan Stanley, and JPMorgan. A larger fund administrator is looking to acquire Bermuda-based Butterfield Fulcrum
The document summarizes the investment banking industry. It describes major trade associations that represent the industry globally and regionally. It provides details on revenue sources for major US investment banks pre-2008 crisis. It discusses the effects of the 2008 financial crisis, including the collapse of Lehman Brothers and bailouts of other banks. It also covers criticisms of conflicts of interest and compensation in the industry.
Finance companies obtain funding from sources other than deposits to provide various types of loans. While they make similar loans to banks, they face different regulations as most are regulated at the state level. Consolidation in the finance industry has increased over time, with the largest 20 firms controlling over 70% of assets by the late 1990s. Financial conglomerates also emerged to provide diverse financial products and seek synergies across business lines.
Bob Diamond was appointed CEO of Barclays Capital in 1996 and helped build it into a world-class investment bank through strategic acquisitions and rapid revenue growth that outpaced peers. Under his leadership, Barclays Capital expanded its product expertise, developed new business lines, and modernized operations. By the time of the 2008 financial crisis, Barclays Capital had a full suite of products and services due to Diamond's leadership over nearly two decades.
The document introduces credit derivatives and their growing significance. It discusses how credit derivatives allow independent management of credit risk from other risks associated with debt instruments. This separates ownership and management of credit risk, improving efficiency. Credit derivatives also enable short selling of credit risk and off-balance sheet leverage. The document provides an overview of basic credit derivative structures and their applications in portfolio management, reducing issuer costs, and pursuing relative value opportunities.
1) The document discusses corporate financing and valuation, specifically the trade-off theory of capital structure.
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The document discusses how to navigate banking relationships during troubled economic times. It provides an overview of the shifts in the banking industry due to the financial crisis, including increased consolidation and losses from mortgage-backed securities and credit default swaps. It then offers advice on evaluating your bank's health, communicating proactively with your banker, understanding your loan terms and knowing when to seek other options.
The document discusses various types of financial instruments and markets. It begins by explaining how companies raise money through financial markets and the packaging of future cash flows. It then defines different financial markets and instruments such as money markets, capital markets, bonds, stocks, and preferred shares. It also discusses how private companies obtain financing and the process for companies going public.
Collateral Management and Market Developments - WhitepaperNIIT Technologies
1) Collateral management has become increasingly important for financial institutions due to market developments like increased collateral circulation and new regulations requiring more collateral. It is no longer a back office function but a major challenge.
should build or buy systems that can integrate with existing
2) Key features of collateral management include bi-party agreements between two parties, tri-party agreements involving a third party custodian, collateral trading and re-hypothecation, and repurchase (repo) agreements.
infrastructure and provide a centralized view of collateral across
3) Best practices for financial institutions include regularly revaluing collateral, maintaining relationships with key clients, performing regular portfolio reconciliations, considering outsourcing collateral
This document discusses credit analysis and financial distress prediction. It covers key topics including why firms use debt financing, potential downsides of debt financing, and differences in debt financing practices internationally. It also describes the credit analysis process in private debt markets, including conducting financial analysis and assembling loan structures. Methods of predicting financial distress like Altman's Z-score model are also discussed.
This document provides an overview of the X 430.611 course on credit markets. The course will cover macroeconomic and microeconomic aspects of credit, including various credit instruments, markets, and firm-level and consumer credit decisions. It will examine bubbles, bank runs, liquidity crises and defaults from both market and individual perspectives. The slides that follow provide examples of class content, including the importance of credit, capital structures, how credit is priced based on risk, and mechanisms like securitization that distribute credit risk. The course also examines the dark side of debt through topics like how leverage can inflate bubbles and how excessive leverage can distort the economy.
J.P. Morgan has a 200+ year history as a leading financial institution. It provides services across investment banking, sales and trading, asset management, and corporate banking. After mergers over the decades, it is now one of the largest banks in the U.S. by assets. The document outlines J.P. Morgan's business lines and history of acquisitions and milestones.
Are Collateralized Loan Obligations the ticking time bomb that could trigger ...Kaan Sapanatan, CFA, CAIA
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The document provides an outline for Redington's quarterly publication called "Outline" which features thought pieces on key investment topics for institutional investors.
The March 2013 issue includes articles on:
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D&O insurance policies offer liability cover for company managers to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties. D&O cover was first conceived in the late 19th century, and after a long period of obscurity has spread rapidly throughout the industrialized world since the 1980s. Such policies cover the personal liability of company directors and officers as individuals, reimbursement of the insured company if it pays a claim on behalf of its managers, and cover for securities claims against publicly listed companies. The document discusses why companies purchase D&O insurance, how D&O cover functions in terms of who and what is covered, and developments in the D&O insurance market globally.
How to Identify the Best Crypto to Buy Now in 2024.pdfKezex (KZX)
To identify the best crypto to buy in 2024, analyze market trends, assess the project's fundamentals, review the development team and community, monitor adoption rates, and evaluate risk tolerance. Stay updated with news, regulatory changes, and expert opinions to make informed decisions.
13 Jun 24 ILC Retirement Income Summit - slides.pptxILC- UK
ILC's Retirement Income Summit was hosted by M&G and supported by Canada Life. The event brought together key policymakers, influencers and experts to help identify policy priorities for the next Government and ensure more of us have access to a decent income in retirement.
Contributors included:
Jo Blanden, Professor in Economics, University of Surrey
Clive Bolton, CEO, Life Insurance M&G Plc
Jim Boyd, CEO, Equity Release Council
Molly Broome, Economist, Resolution Foundation
Nida Broughton, Co-Director of Economic Policy, Behavioural Insights Team
Jonathan Cribb, Associate Director and Head of Retirement, Savings, and Ageing, Institute for Fiscal Studies
Joanna Elson CBE, Chief Executive Officer, Independent Age
Tom Evans, Managing Director of Retirement, Canada Life
Steve Groves, Chair, Key Retirement Group
Tish Hanifan, Founder and Joint Chair of the Society of Later life Advisers
Sue Lewis, ILC Trustee
Siobhan Lough, Senior Consultant, Hymans Robertson
Mick McAteer, Co-Director, The Financial Inclusion Centre
Stuart McDonald MBE, Head of Longevity and Democratic Insights, LCP
Anusha Mittal, Managing Director, Individual Life and Pensions, M&G Life
Shelley Morris, Senior Project Manager, Living Pension, Living Wage Foundation
Sarah O'Grady, Journalist
Will Sherlock, Head of External Relations, M&G Plc
Daniela Silcock, Head of Policy Research, Pensions Policy Institute
David Sinclair, Chief Executive, ILC
Jordi Skilbeck, Senior Policy Advisor, Pensions and Lifetime Savings Association
Rt Hon Sir Stephen Timms, former Chair, Work & Pensions Committee
Nigel Waterson, ILC Trustee
Jackie Wells, Strategy and Policy Consultant, ILC Strategic Advisory Board
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Confirmation of Payee (CoP) is a vital security measure adopted by financial institutions and payment service providers. Its core purpose is to confirm that the recipient’s name matches the information provided by the sender during a banking transaction, ensuring that funds are transferred to the correct payment account.
Confirmation of Payee was built to tackle the increasing numbers of APP Fraud and in the landscape of UK banking, the spectre of APP fraud looms large. In 2022, over £1.2 billion was stolen by fraudsters through authorised and unauthorised fraud, equivalent to more than £2,300 every minute. This statistic emphasises the urgent need for robust security measures like CoP. While over £1.2 billion was stolen through fraud in 2022, there was an eight per cent reduction compared to 2021 which highlights the positive outcomes obtained from the implementation of Confirmation of Payee. The number of fraud cases across the UK also decreased by four per cent to nearly three million cases during the same period; latest statistics from UK Finance.
In essence, Confirmation of Payee plays a pivotal role in digital banking, guaranteeing the flawless execution of banking transactions. It stands as a guardian against fraud and misallocation, demonstrating the commitment of financial institutions to safeguard their clients’ assets. The next time you engage in a banking transaction, remember the invaluable role of CoP in ensuring the security of your financial interests.
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A toxic combination of 15 years of low growth, and four decades of high inequality, has left Britain poorer and falling behind its peers. Productivity growth is weak and public investment is low, while wages today are no higher than they were before the financial crisis. Britain needs a new economic strategy to lift itself out of stagnation.
Scotland is in many ways a microcosm of this challenge. It has become a hub for creative industries, is home to several world-class universities and a thriving community of businesses – strengths that need to be harness and leveraged. But it also has high levels of deprivation, with homelessness reaching a record high and nearly half a million people living in very deep poverty last year. Scotland won’t be truly thriving unless it finds ways to ensure that all its inhabitants benefit from growth and investment. This is the central challenge facing policy makers both in Holyrood and Westminster.
What should a new national economic strategy for Scotland include? What would the pursuit of stronger economic growth mean for local, national and UK-wide policy makers? How will economic change affect the jobs we do, the places we live and the businesses we work for? And what are the prospects for cities like Glasgow, and nations like Scotland, in rising to these challenges?
In World Expo 2010 Shanghai – the most visited Expo in the World History
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China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
Monthly Market Risk Update: June 2024 [SlideShare]Commonwealth
Markets rallied in May, with all three major U.S. equity indices up for the month, said Sam Millette, director of fixed income, in his latest Market Risk Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Every business, big or small, deals with outgoing payments. Whether it’s to suppliers for inventory, to employees for salaries, or to vendors for services rendered, keeping track of these expenses is crucial. This is where payment vouchers come in – the unsung heroes of the accounting world.
1. JP MORGAN FINANCIAL LOSS
• KISHORE KUMAR.C (09MIB026).
• Manojh(11MBA0048).
• Noor Md.(11MBA0084)
2. Introduction…
J.P. Morgan is a leader in financial services, offering solutions
to clients in more than 100 countries with one of the most
comprehensive global product platforms available. It has been
helping clients to do business and manage their wealth for
more than 200 years. The business has been built upon our
core principle of putting our clients’ interests first.
J.P. Morgan is part of JPMorgan Chase & Co. (NYSE: JPM), a
global financial services firm with assets of $2.3 trillion.
3. Business…
J.P. Morgan is a leader in asset management, investment
banking, private banking, treasury and securities services, and
commercial banking. Today, the firm serves one of the largest
client franchises in the world, including corporations,
institutional investors, hedge funds, governments, healthcare
organizations, educational institutions and affluent individuals in
more than 100 countries.
J.P. Morgan’s core businesses include:
Asset Management Investment Bank
Private Banking Securities Services
Treasury Services Commercial Banking
4. Trading Loss….
Trading losses that risk eroding firms’ capital in its entirely are
more important—to the institution, to other market participants,
and (in the case of banks) to the federal deposit insurance fund—
than bigger losses at larger or better-capitalized firms. Other
things being equal, a better-capitalized institution is more able to
sustain trading losses and is thus less likely to fail and present
costs to counterparties, to the taxpayer, and (in the case of
systemically important institutions) to the financial system in
general and perhaps to the economy as a whole.
5.
6.
7. JPMorgan Chase, suffered losses of less than 10 percent of equity.
JPMorgan Chase lost 0.3 percent of total assets, 4 percent of net
equity, and 4.8 percent of tier one capital. Its losses, while vast, were
not large enough relative to its equity cushion and capitalization to
present a solvency problem and did not compel the bank to raise
additional capital.
Controller of the Currency told the House Financial Services
Committee, "the loss by [JPMorgan] affects its earnings, but does
not present a solvency issue. [JPMorgan], like other large banks,
It has improved its capital, reserves, and liquidity since the financial
crisis, and its levels are sufficient to absorb this loss."
8.
9. On May 10, 2012, JP Morgan disclosed that it had lost more than
$2 billion by trading financial derivatives. Jamie Dimon, CEO and
chairman of JP Morgan, reported that the bank’s Chief Investment
Office (CIO) executed the trades to hedge the firm’s overall credit
exposure as part of the bank’s asset liability management program
(ALM). The CIO operated within the depository subsidiary of JP
Morgan, although its offices were in London. The funding for the
trades came from what JP Morgan characterized as excess deposits,
which are the difference between deposits held by the bank and its
commercial loans.
10. The trading losses resulted from an attempt to unwind a previous hedge
investment, although the precise details remain unconfirmed. The losses
occurred in part because the CIO chose to place a new counter-hedge
position, rather than simply unwind the original position.
In 2007 and 2008, JP Morgan had bought an index tied to credit default
swaps on a broad index of high-grade corporate bonds. In general, this
index would tend to protect JP Morgan if general economic conditions
worsened (or systemic risk increased) because the perceived health of high-
grade firms would tend to deteriorate with the economy. In 2011, the CIO
decided to change the firm’s position by implementing a new counter
trade. Because this new trade was not identical to the earlier trades, it
introduced basis risk and market risk, among other potential problems. It is
this second “hedge on a hedge” that is responsible for the losses in 2012.
11. Several financial regulators are responsible for overseeing elements
of the JP Morgan trading losses. The Office of the Controller of the
Currency (OCC) is the primary prudential regulator of federally
chartered depository banks and their ALM activities, including the CIO
of JP Morgan, even though it is located in London. The Federal Reserve
is the prudential regulator of JP Morgan’s holding company, although
it would tend to defer to the primary prudential regulators of the
firm’s subsidiaries for significant regulation of those entities. The
Federal Reserve also regulates systemic risk aspects of large financial
firms such as JP Morgan.
12. The CIO must fulfill with Federal Deposit Insurance Corporation
(FDIC) regulations because it is part of the insured depository.
The Securities and Exchange Commission (SEC) oversees JP Morgan’s
required disclosures to the firm’s stockholders regarding material
risks and losses such as the trades.
The Commodity Futures Trading Commission (CFTC) regulates
trading in swaps and financial derivatives. The heads of these
agencies coordinate through the Financial Stability Oversight Council
(FSOC), which is chaired by the Secretary of Treasury.
13. The trading losses may have implications for a number of financial
regulatory issues. For example, should the exemption to the Volcker
Rule for hedging be interpreted broadly enough to encompass
general portfolio hedges like the JP Morgan trades, or should hedging
be limited to more specific risks?
Are current regulations of large financial firms the appropriate
balance to address perceptions that some firms are too-big-to-fail?
14. The trading losses raise concerns about the calculation and
reporting of risk by large financial firms.
JP Morgan changed its value at risk (VaR) model during the time of
the trading losses. Some are concerned that VaR models may not
adequately address potential risks. Some are concerned that the
change in reporting of the VaR at JP Morgan’s CIO may not have
provided adequate disclosures of the potential risks that JP Morgan
faced. Such disclosures are governed by securities laws.
15. The $2 billion trading loss that JPMorgan Chase announced in a
hastily scheduled conference call on May 10 has its roots in credit-
default swaps, the same derivatives that helped trigger the financial
crisis—only this time there were no mortgages involved.
The bank has launched an internal investigation, regulators are
swarming, and the Department of Justice has said it is pursuing a
criminal probe. The bank has not yet released details of the money-
losing trades. But based on publicly available information plus
interviews with traders, former JPMorgan employees, and fund
managers, it’s possible to draw the basic outlines of what may have
gone wrong.
16. The mistakes were made in the bank’s Chief Investment Office, run by
Ina Drew, who left the company on May 14. The office is in charge of
managing excess cash and some of its investments. In the past five
years, Chief Executive Officer Jamie Dimon has transformed the
operation, increasing the size and risk of its speculative
bets, according to five former executives with direct knowledge of the
changes, Bloomberg News reported in April. The mandate was to
generate profits, a shift from the office’s mission of protecting
JPMorgan from risks inherent in its banking business, such as interest-
rate and currency fluctuations. A spokesman for the bank declined to
comment.
17. Credit-default swaps are insurance-like contracts between two
parties. The buyer makes regular payments to the seller, who must
make the buyer whole if an insured bond defaults.
In addition to buying credit-default swaps on a particular bond,
investors can buy swaps on indexes of bonds, such as the ones
created by Markit Group, a deriviatives firm.
The indexes rise when economic conditions worsen and the likelihood
of corporate bond defaults increases. Traders use them to speculate
on changing credit conditions. Buying the index can be a way for
someone who owns a lot of corporate bonds to hedge against a
decline in their value.
18. In 2011, JPMorgan profited by betting that credit conditions would
worsen. In December, though, the European Central Bank provided
long-term loans to euro zone banks, igniting a bond rally.
Suddenly, JPMorgan’s bearish bets were vulnerable. Early this
year, London-based traders in JPMorgan’s Chief Investment Office
made offsetting bullish bets, according to market participants. It sold
credit insurance using a Markit CDX North America Investment Grade
Index that reflects the price of credit-default swaps on 121
companies that had investment-grade ratings when the index was
created in 2007. The bank is thought to have sold insurance on the
index using contracts that expire in 2017.
19. To protect against short-term losses, it also bought insurance on the
index using contracts that expire at the end of 2012. That could have
been a profitable strategy, because the 2017 insurance was more
expensive than the 2012. And as long as the spread between the
prices of the two contracts remained relatively stable, any decline in
the value of one would be offset by an increase in the other, reducing
the bank’s risk of an overall loss on the position.
JPMorgan bought and sold so many contracts on the Markit CDX that
it may have driven price moves in the $10 trillion market for credit
swaps indexes tied to corporate health, according to market
participants. At one point the cost of insurance via the index fell
20 percent below the average cost of insuring the individual bonds
that composed the index. “The strategy overall got too big,” says
Peter Tchir, a former credit derivatives trader who now heads TF
Market Advisors, a New York trading firm. “Once their activity was
moving the market, they should have stopped and got out.”
20. Sensing an opportunity, some hedge funds bought the 2017
contracts and sold credit insurance on the underlying
bonds, hoping to profit when the relationship between the prices
returned to normal. But because JPMorgan continued to be a big
seller of insurance, the prices got even more out of whack, giving
the hedge funds a paper loss. That led some traders to complain
about the situation to the press. On April 5, Bloomberg News
published a story saying that Bruno Iksil, a London-based trader for
JPMorgan, had amassed a position so large that he may have been
driving price moves in the credit derivatives market. The
information was attributed to five traders at hedge funds and rival
banks who requested anonymity because they were not
authorized to discuss the transactions. Iksil’s influence on the
market spurred some counterparts to dub him the London Whale.
21. Once the news got out, things quickly went south for JPMorgan.
Hedge funds increased their bets that prices would come back in line.
Thanks to their trades plus deteriorating credit conditions, the prices
of the 2017 index contracts rose more than the prices of the 2012
contracts. JPMorgan’s paper losses mounted.
Compounding the losses were the sheer size of the bets, which made
it difficult for the bank to unwind its trades. “These had to be
massive positions” to inflict the loss JPMorgan suffered, says Michael
Livian, CEO of Manhattan asset manager Livian & Co. and a former
credit derivatives specialist at Bear Stearns. “And when you build that
kind of size in the credit derivative market, you have to know you
can’t just exit the position overnight.”
22. On the May 10 conference call, Dimon confessed: “The portfolio has
proven to be riskier, more volatile, and less effective as an economic
hedge than we thought.” For JPMorgan, the nation’s largest bank,
the stakes are far bigger than a $2 billion paper loss. Since the bank
announced its loss, investors have driven the stock down
13 percent, knocking $20 billion off the company’s market value as
of May 16.
The episode has reignited the debate over how much freedom
banks should have to make bets. Dimon had been a vociferous
opponent of the Volcker Rule, a section of the Dodd-Frank financial
reform law that would greatly limit the kinds of risks banks can take.
Now, as Dimon himself pointed out, the proponents of the rule can
point to JPMorgan to support their case. “This is a very unfortunate
and inopportune time to have had this kind of mistake, yeah,” he
said in an appearance on NBC’sMeet the Press.
23. The loss also raises the question of why the bank was putting
shareholders at risk to gamble in a market of hidden indexes, where
specialized hedge funds seek to profit from pricing anomalies.
“JPMorgan was definitely in the very dark gray area between
insurance and speculation,” says Robert Lamb, a finance professor at
New York University who has studied risk on Wall Street. “To be the
one side of the market and to think you were immune from the
crowd on the other side is not safe, sane, or reasonable.”