The assignment was as follows:. JPMorgan Chase is the largest financial holding company in the United Sates and has more than 2 trillion dollars in assets. It is also a global financial services firm with more than , employees United States Senate pg. Previous to , Mr. With Mr. Dimon guiding the firm, JP Morgan held an excellent reputation with respect to risk management.
Emerging from the financial crisis unscathed, Mr. Dimon became more powerful and confident. He frequently railed against the need for government regulations with regard to proprietary trading in large financial firms. Imagine a scalper who purchased 50, tickets to a sporting event with a capacity of 75, seats. The event is not nearly as popular as was anticipated by the scalper, thus the going price on the tickets plummets rapidly as would be ticket buyers wait for prices to fall further from face value.
The scalper intended to hold tickets for the long term expecting high demand but with too many people on the sidelines betting that prices would fall, the scalper had to cut losses and sell at a drastic loss. Since JP Morgan has an excess of deposits after the firm makes loans available to business and consumers, this excess cash is invested by the CIO group to hedge against disparate investment actions undertaken by other areas of the bank.
Ultimately JP Morgan would end up being a victim of its own success as it continued to conduct proprietary trades in the CIO division. Bruno Iksil and the London CIO office were steadily racking up daily losses in the hundreds of millions of dollars by investing in synthetic derivatives i.
Credit Default swaps or CDS. The trading positions that the CIO office held were not hedging against other bank investments, as was the purported charge of this office.
Credit default swaps are financial derivatives the provide investors insurance on bonds against potential default. Needless to say, the companies in the index did not improve. The initial million dollar position that the CIO office held in the CDX IG 9 index was essentially cornering the market and when there were no willing buyers, the firm had to sell at massive loss. The massively large trades in credit default swaps the same complex financial instruments that doomed A.
G during the financial crisis began to affect credit markets worldwide. Initially, by the end of the week on May 11, when the firm held a hastily convened conference call regarding transparency around the London Whale trades, JP Morgan suffered a loss of By the end of May the synthetic derivatives portfolio alone had lost 2 billion dollars. By the end of June the losses doubled to 4.
Amazingly, Mr. Overview Included Materials. Learning Objectives Having cultivated a reputation for sound risk management and business decision making, the 'London Whale' epidsode raises the follwing question around JP Morgan's internal controls: Why did standard market risk management practices for financial institutions, such as Value-at-Risk VaR , not prevent such an extraordinary loss, and where did the process fail?
In addition, the soon-to-be published Case B will explore the effectiveness of the indictments and penalties handed out by the US courts by the summer of Will they have any impact on risk-taking by financial institutions? The case offers a backdrop for a discussion on the effectiveness of regulations. Details Pub Date: Mar 24, Discipline: Finance. Subjects: Decision making Financial risk Portfolio management Risk management.
Length: 18 page s. All Rights Reserved. Skip to Main Content Skip to Search. News Corp is a global, diversified media and information services company focused on creating and distributing authoritative and engaging content and other products and services. Dow Jones. Tracy wsj. Sponsored Offers. Most Popular News.
0コメント