J.P. Morgan Chase Faces Arising Issues
Taylor A. Akinmoladun
National American University
J.P. Morgan Chase Bank has found their way into a lot of turmoil in recent years. Each having its own affect of the bank’s reputation. The famous Enron scandal is hard to forget, and some of J.P. Morgan’s executives are still being sued over the bank’s relationship with them, even over a decade later. Back in 2005 the bank made an interest rate swap with the city of Milan in which criminal charges are still pending with hearing occurring weekly. J.P. Morgan also made its way into the news over their mortgage foreclosures and mortgage backed securities. There have also been several lawsuits ...view middle of the document...
Recently they’ve been found to be manipulating how they market mutual funds for profit and have been revealing multibillion-dollar trading losses related to the “London Whale”. In addition, J.P. Morgan Chase has been declining to share emails related to its power- trading operations; these emails may prove whether J.P. Morgan extracted artificially high payments from wholesale energy markets, in turn, driving up prices for consumers. The bank has been under investigation by a number of federal regulatory agencies that are subpoenaing these internal documents relating to whether the firm manipulated energy markets in California and the Midwest as alleged.
J.P. Morgan’s chief investment office in London has recently taken the spotlight, but not for doing well. The CIO invests excess deposits for the bank and is intended to reduce interest rate risk by making offsetting investments. The CIO made more than $4 billion in profits over the last three years; this was approximately 10 percent of the bank’s profit over that period (Silver- Greenberg & Craig, 2012). In recent news, the CIO has made some decisions that have consequences of large losses. CEO James Dimon testified before the House Financial Services Committee saying that the CIO attempted a complex strategy exposing the bank to great risks, even though it was their job to minimize them.
One trader in the CIO, Bruno Iksil, accumulated positions in credit derivatives so large and market moving that he received the nickname the “London Whale”. These outsized wagers in the credit markets were illiquid, meaning they are not easily converted into cash taking the bank more time to get out of them. Some of his bets on credit-default swaps backfired this year resulting in major losses to the bank. Back in 2010 a senior executive at the CIO created a report estimating how much money the bank could lose if Iksil’s trades had to be turned within 30 days. The warning was given that reserves should be put aside to handle any losses that may arise from Iksil’s trades; CEO Dimon did not take the advice.
In CEO Dimon’s defense, J.P. Morgan Chief Executive Officer of Treasury and Securities Services Business Michael Cavanaugh, who oversaw the review of the London Whale, stated that both Dimon and Chief Financial Officer Doug Braunstein did not know much about the potential losses back before they began to spiral downhill. Dimon, Braunstein, and other senior executives were informed by the CIO traders and managers that the derivatives bets ranged anywhere from a profit of $350 million to a loss of $250 million (Farrell, 2012). Bank executives currently believe that traders were avoiding showing losses, hoping for an upswing.
The question may be raised as to how Bruno Iksil, AKA 'The London Whale', was able to create such a large loss; the simple answer is his solid reputation. Iksil went to a prestigious French engineering school, École Centrale Paris, and made some treacherous trades the ABX subprime...