Economics of JP Morgan Chase - Essay Example

The bulk of the sloppiness emanates from the irregular investment decisions that JP Morgan undertook. According to Greenberg and Eavis, managers were admitting the bank had a lower quality of risk management that was not sophisticated enough to cushion it from the $2bn loss. Dimon was adamant that the execution of the hedging strategy was inappropriate and poor.

Effects of the loss
This revelation of the loss was causing ripples in the Stock markets of the US and did affect the share price of JP Morgan. The loss dented the share value of the investment bank by 9.3% on Friday and for a bank that was previously recording significant earnings, this was shocking to its stakeholders. The bank has enlarged its credit quantities over several years of trading in profitable investment projects, which were subject to exhaustive monitoring from management. However, recently JP Morgan did not incorporate these stringent measures into the diverse hedging strategies of the bank thus resulting in a disastrous loss in their earnings. In 2007, there was discontent among various stakeholders of the company in the manner The Chief Investment Officer (CIO) Bruno Iskil was utilizing the corporation's resources in undertaking unnecessary risks.

In addition to the financial woes, the CEO of JP Morgan was suggesting the company could further experience losses of $ 1 billion due to the inevitable economic turbulences. This supposition will increasingly injure the share prices of the bank, which will dwindle further downwards. This can discourage potential clients from trading in the stocks of JP Morgan since they will be of a lower value. This factor will diminish their confidence and the clients will not be enthusiastic to deposit their savings in JP Morgan. Furthermore, Fitch, a credit rating agency, did downgrade the bank and was affirmative that this decline could extend unless JP Morgan acts upon the issue of the loss in due time. Downgrading of the bank can jeopardize the reputation that it has amassed for several years for being US's biggest and most successful bank.

Remedial Measures
Treanor suggests The Securities Exchange Commission (SEC) is launching investigations on the facets responsible for the loss to JP Morgan. This body will analyze in detail the anomalies that were responsible for the extensive loss in the London branch. The legislators in the US and the British are imploring that this loss was a laxity in the monitoring of bank transactions. They were insistent if the oversight committee of JP Morgan was aggressive enough the loss would be less and manageable. Secondly, stricter rules on proprietary trading of the banks will assist in declining the impulsive trading of the banks. The bank was enormously investing in “credit default swaps” that are meant to insure against default by government and institutions. Subsequently, this action was not consistent with the Volcker Rule, which discourages executives from engaging in speculative investments that may not benefit their clients.

Conclusion
JP Morgan did a miscalculation in their investment opportunities and this adversely affected its financial standpoint. The Investment bank CEO was attributing their loss to grievous anomalies that the management committed. The regulators have moved in to establish the origin of the loss, its implications, and remedies that the bank can adopt to avoid a similar predicament in the future. Read More