Tag Archives: Derivatives

JP Morgan Whale Trade Losses: Important Lessons For Auditors And Risk Professionals

Some more information has come to light on the more than $7 billion “Whale Trade” derivative losses at JP Morgan—that total being comprised of an amount of over $6 billion in losses on the trade and a further amount of almost $1 billion in fines.

In an article on Bloomberg entitled JP Morgan’s Biggest Mistake, author William D Cohan provides us with somewhat of an insider’s overview on the problems that led to the Whale Trade losses—his sister-in-law sat on the Audit Committee. This article summarises some of Cohan’s main points and identifies the lessons that auditors and other risk professionals should be learning in order to avoid making similar mistakes. Continue reading

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JP Morgan Whale Trade Investigation

 It would seem that the authorities are taking a very close look ay JP Morgan’s $6.2 billionn derivative loss. The issue appears to be that pressure was placed on the trader to mismark the portfolio and the risk and pricing parameters adjusted accordingly. The folowing article from Bloomberg outlines the issues: London Whale Resurfaces in Potential US JP Morgan Case.

However, the article from the website Zero Hedge is a bit more detailed. It includes references to to the Congressional report on JP Morgan and why the bank may have been in breach of the Volcker rule.

Jonathan Ledwidge is the author of the book Clearing The Bull, The Financial Crisis And Why Banks Need A Human Transformation (iUniverse).

Why Banks Are Still In Trouble, How They Must Change

Address to the City Book Fair in London by Jonathan Ledwidge.

Clearing The Bull (Part 1) – Ending 30 Years Of Banking Failures  What banks must first do to stop repeating their history of failure.

Clearing The Bull (Part 2) – Why Banks Are Still In Trouble                   The moment of clarity banks need if they are to make real progress.

Clearing The Bull (Part 3) – How Banks Must Change                              An insider’s view on making the banking industry more human and more competitively and economically sustainable.

Jonathan Ledwidge is the author of the book Clearing The Bull: The Financial Crisis And Why Banks Need A Human Transformation.

TBTF Means TBTM (Too Big To Manage) Part I

Banks that are too big to fail or TBTF are by definition also too big to manage or TBTM. What does this tell us about the state and the mindset of senior management in our major banks?

In a 2009 article entitled A House Built On Sandy (Sandy, meaning Sandy Weill, the main architect of the modern Citigroup) The Economist describes the decline of Citi in terms which are less than flattering. The following extracts tell the tale:

“TOO big to fail, too shit to buy” is the way some Citigroup insiders describe their employer… Acquisitions were poorly integrated. Cultures overlapped rather than melded)… It may be inevitable that some banks are too big to fail; but the lesson of Citi is that they can also be too big to manage.

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Clearing The Bull: JP Morgan And Derivatives Derangement Syndrome (DDS) Part III

Some of the attacks on JP Morgan are indicative of the extent to which governments, regulators and the media understand neither risk nor banking. This is the third in a series of articles on the JP Morgan derivatives loss—here are the links for Parts I and Part II.

What is Derivative Derangement Syndrome (DDS)?

It is when the fear of derivatives becomes so irrational that it renders the victim either unwilling or unable (sometimes both) to see derivatives for what they are, or to come to terms with potentially greater threats to the financial system and the economy. It is a dangerous malady.

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Clearing The Bull: JP Morgan And Derivatives Derangement Syndrome (DDS) Part II

In the first article we placed the JP Morgan derivatives loss in context, noting that governments are a far greater danger to our financial health than banks. This article focuses on why more legislation, more regulation, more governance and more controls will not solve the problem.

Contrary to what everyone would have us believe the failures at JP Morgan were not about legislation, regulation governance and controls—history shows that these only work until the next cock-up. They are about the mission and values of the organization, and thus the type of culture within which it operates.

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Clearing The Bull: JP Morgan And Derivatives Derangement Syndrome (DDS)

The headline writers are at it again as just about every publication that can spell the word derivatives is bemoaning JP Morgan’s $2 billion credit derivatives loss. Meanwhile, on planet Earth, the EU continues to sink under hundreds of billions of dollars of debt.

JP Morgan’s $2 billion credit derivatives loss is, in reality and the greater scheme of things, a non-story.  It’s a 1% loss on a $200 billion investment portfolio. It is a 0.1% impairment of a $2 trillion balance sheet. This is minor when compared to the hundreds of billions of dollars in junk and distressed Eurozone sovereign debt.

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