Tag Archives: JP Morgan

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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Human Risk 3: Why Banks, Organisations Must Rethink Their Approach

This is the third in a series of articles on Human Risk. The first two can be found here and here.

It is commonly acknowledged that a primary cause of the last financial crisis was the poor culture and values within the banking industry—superstar bosses with big egos, greed and the failure to challenge management have all been identified as having played a major role. This assertion has been supported with reference to the likes of Fred Goodwin of RBS, Dick Fuld of Lehman Brothers and Stan O’Neal of Merrill Lynch who have all been named in Time magazine’s list of 25 People to Blame for the Financial Crisis.

If personal skills and attributes were indeed a major cause of the financial crisis then we must conclude that the failure of HR was as much to blame as the failure of traditional risk management. Continue reading

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).

Can You Trust Your Auditor?

Audited financial statements are supposed to provide a solid foundation for financial markets. Yet, they increasingly appear incapable of delivering what is needed—a reliable assessment of an organization’s financial position. Is there any hope for change?

The recent history of professional accountancy and audit firms has been far from glorious. Audited financial statements are supposed to provide shareholders, investors and creditors with an independent and objective assessment of an organization’s health. The financial crisis of 2008, the aftershocks of which are still being felt all over the world, made audited financial statements look like they were not worth the paper they were written on.  Continue reading

TBTF Means TBTM (Too Big To Manage) Part II

Banks that are too big to fail or TBTF are by definition also too big to manage or TBTM. In Part II of the series we look at the role played by the growth of products and markets in this phenomenon. Part I can be found here.

What is it about the industry that makes banks so susceptible to becoming TBTM or too big to manage? As noted in Part I, egos and megalomania do play a significant part. However, they are definitely not the whole story.

For many bankers, performance is synonymous with size. Bankers take it as gospel that the greater their share of a particular product market, the greater the profits to be earned from that market. It is obvious that such a proposition does not necessarily hold true.

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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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