CFO: JP Morgan Hedge Exposed the Bank to More Risk



In a feature story today (5/17/12), CFO magazine says JPMorgan Chase’s $2 billion mark-to-market trading loss stemmed from some fundamental mistakes by risk managers: particularly the notion that a hedge on credit exposures could reduce the bank’s risk but at the same time earn billions of dollars.

That’s what experts are saying, notes CFO, about a trading loss that has knocked billions off the bank’s market share, sparked probes by the Justice Department and the Securities and Exchange Commission, forced credit-rating firms to issue negative outlooks for the bank, and turned the spotlight on a bank unit that was set up to invest excess deposits but also generate a sizable profit.

The CFO story is based primarily on interviews and commentary from experts, including the former finance chief at JPMorgan, who have extensive knowledge and understanding of the risk involved in investing in a benchmark for credit-default swaps designed to mitigate the bank’s overall credit exposure, in particular the possibility of higher interest rates and inflation. But the hedge was risky itself and the positions in derivatives so large that they distorted the market.

To view the CFO article in its entirety, click here.


Like this story? Begin each business day with news you need to know! Click here to register now for our FREE Daily E-News Broadcast and start YOUR day informed!

Leave a comment

No tags available

View Latest Digital Edition

Terry Mulreany
Subscriptions: 800 708 9373 x130
[email protected]
Susie Angelucci
Advertising: 484.459.3016
[email protected]

View Latest Digital Edition

Visit our sister website for news, information, exclusive articles,
deal tables and more on the asset-based lending, factoring,
and restructuring industries.
www.abfjournal.com