Jpmorgan Chase & Co.'s 2billion USD Trading Loss
Group Name: Blue Ocean. Md. Rabiul Islam 1020150030. Nafeez Mahmud 1020106030. Zarin Tasnim Arshi 1020049030. Muntasir Shams Nehal 1010586030
Topic: Reasons for JPMorgan Chase & Co.’s 2billion USD trading loss.
J.P. Morgan is one of the world's leading global investment banks, with the client from corporations, governments, states, municipalities, healthcare organizations, educational institutions, banks and investors sector around the world. It is also well known for providing Securities Services, Asset Management, Commercial Banking, Private Banking and treasury services. These different financial services are offered to their customers maintaining an ethical standard as well as having employee commitment in the workplace. It is such …show more content…
kind of financial service provided that is committed to optimize efficiency, mitigate risk and enhance revenue with is valued assets.
Despite of being such a reputed company for such a long time the in May 2012 they incurred loss of 2billion USD in the first quarter.
Besides these, they are also assuming that this loss with increase by another $1billion in the second quarter. After incurring the loss their share piece falls by 7% a day. They fall down from Credit Rating (AA-). They lose the market and customer’s satisfaction. Few institutes are investigating on such loss in the financial market. The U.S. Security Exchange Commission is having a preliminary investigation into JPMorgan’s accounting practices and public disclosures about the trading loss. Besides these the U.K.’s Financial Services Authority examined the role London employees played in the loss. In the end, one of the executive of the bank claimed that the loss was originated from the firm’s Chief Investment Office …show more content…
(CIO).
The Wall Street Journal reports a trader at J.P. Morgan known in the market as the 'London Whale' made large bets on credit derivatives. Iksil used a little-known index of 125 firms – CDX IG 9, which included the Campbell Soup Company and Walt Disney.
They based their estimates on the trades and price movements of credit default swaps – complex instruments used as a type of insurance against companies defaulting they witnessed as well as their understanding of the size and structure of the markets.
J.P.
Morgan says his unit is meant to 'hedge structural risks’. The failed hedge likely involved a bet on the flattening of a credit derivative curve, part of the CDX family of investment grade credit indices, said two sources with knowledge of the industry, but not directly involved in the matter. JPMorgan was then caught by sharp moves at the long end of the bet, [it] said. The CDX index gives traders exposure to credit risk across a range of assets, and gets its value from a basket of individual credit derivatives. In essence, JPMorgan made a series of bets which turned out very, very badly.
Banks’ greatest exposure to losses usually comes from old-fashioned lending, not “proprietary trading”, using their own cash to take bets on financial markets. The 2007-09 financial crisis originated in the deterioration of traditional home mortgage lending, as opposed to banks’ short-term trading of exotic financial instruments for profit. Proprietary trading has a bad image because it’s so easily likened to gambling.
The JPMorgan trading losses come at a difficult time for the international banking system as it faces up to risks linked to the Eurozone debt crisis and international economic
uncertainty.
J.P. Morgan lost the money by betting its own capital—albeit while "hedging" risks—much of the discussion since the news has been on the "Volcker rule," which bans banks from trading for themselves rather than their clients. JP Morgan started buying share for their own rather than their clients. So when the rule is announced then they fall in big trouble. This is also led them to incur the huge loss.
In a conference call disclosing the problem on Thursday, Dimon said the $2 billion in losses could rise by a further $1 billion. However a 2 billion dollar loss for JP Morgan is nothing compared to their total exposure of over 70 trillion dollars.
Overall, the 9 largest U.S. banks have a total of more than 200 trillion dollars of exposure to derivatives. That is approximately 3 times the size of the entire global economy. So let’s not make too much out of this 2 billion dollar loss by JP Morgan. This is just a preview of coming attractions. Soon enough the real problems with derivatives will begin, and when that happens it will shake the entire global financial system to the core.
Topic: Reasons for JPMorgan Chase & Co.’s 2billion USD trading loss.
J.P. Morgan is one of the world's leading global investment banks, with the client from corporations, governments, states, municipalities, healthcare organizations, educational institutions, banks and investors sector around the world. It is also well known for providing Securities Services, Asset Management, Commercial Banking, Private Banking and treasury services. These different financial services are offered to their customers maintaining an ethical standard as well as having employee commitment in the workplace. It is such …show more content…
kind of financial service provided that is committed to optimize efficiency, mitigate risk and enhance revenue with is valued assets.
Despite of being such a reputed company for such a long time the in May 2012 they incurred loss of 2billion USD in the first quarter.
Besides these, they are also assuming that this loss with increase by another $1billion in the second quarter. After incurring the loss their share piece falls by 7% a day. They fall down from Credit Rating (AA-). They lose the market and customer’s satisfaction. Few institutes are investigating on such loss in the financial market. The U.S. Security Exchange Commission is having a preliminary investigation into JPMorgan’s accounting practices and public disclosures about the trading loss. Besides these the U.K.’s Financial Services Authority examined the role London employees played in the loss. In the end, one of the executive of the bank claimed that the loss was originated from the firm’s Chief Investment Office …show more content…
(CIO).
The Wall Street Journal reports a trader at J.P. Morgan known in the market as the 'London Whale' made large bets on credit derivatives. Iksil used a little-known index of 125 firms – CDX IG 9, which included the Campbell Soup Company and Walt Disney.
They based their estimates on the trades and price movements of credit default swaps – complex instruments used as a type of insurance against companies defaulting they witnessed as well as their understanding of the size and structure of the markets.
J.P.
Morgan says his unit is meant to 'hedge structural risks’. The failed hedge likely involved a bet on the flattening of a credit derivative curve, part of the CDX family of investment grade credit indices, said two sources with knowledge of the industry, but not directly involved in the matter. JPMorgan was then caught by sharp moves at the long end of the bet, [it] said. The CDX index gives traders exposure to credit risk across a range of assets, and gets its value from a basket of individual credit derivatives. In essence, JPMorgan made a series of bets which turned out very, very badly.
Banks’ greatest exposure to losses usually comes from old-fashioned lending, not “proprietary trading”, using their own cash to take bets on financial markets. The 2007-09 financial crisis originated in the deterioration of traditional home mortgage lending, as opposed to banks’ short-term trading of exotic financial instruments for profit. Proprietary trading has a bad image because it’s so easily likened to gambling.
The JPMorgan trading losses come at a difficult time for the international banking system as it faces up to risks linked to the Eurozone debt crisis and international economic
uncertainty.
J.P. Morgan lost the money by betting its own capital—albeit while "hedging" risks—much of the discussion since the news has been on the "Volcker rule," which bans banks from trading for themselves rather than their clients. JP Morgan started buying share for their own rather than their clients. So when the rule is announced then they fall in big trouble. This is also led them to incur the huge loss.
In a conference call disclosing the problem on Thursday, Dimon said the $2 billion in losses could rise by a further $1 billion. However a 2 billion dollar loss for JP Morgan is nothing compared to their total exposure of over 70 trillion dollars.
Overall, the 9 largest U.S. banks have a total of more than 200 trillion dollars of exposure to derivatives. That is approximately 3 times the size of the entire global economy. So let’s not make too much out of this 2 billion dollar loss by JP Morgan. This is just a preview of coming attractions. Soon enough the real problems with derivatives will begin, and when that happens it will shake the entire global financial system to the core.