Friday, May 11, 2012

Follow-up: JPMorgan

As follow-up to the previous post, I was going to say that JP Morgan seemed to me to come out of the financial crisis that triggered the Great Recession better than anyone except maybe for Wells Fargo.

But it is announced today that JPMorgan must book a $2 billion dollar loss on a single bad bet that apparently happened over a brief period of six-weeks.  A staggering number for any company.  The banking company is referred to in The Wall Street Journal today as "the King of Wall Street."  Once more, a major US bank demonstrates how difficult it is to manage risk in current economic circumstances.

Even with the loss, however, JP Morgan will still record a profit of about $4 billion for this quarter.  Not a shabby performance by most standards.  Risk being risky, the loss should perhaps not be as "shocking" as the media is making it out to be.  JP Morgan still appears to be responsibly managed in spite of the the huge hit to earnings.

As suggested in the Frontline documentary, Terri Duhan advised JPMorgan to reduce its exposure to particular Swaps and CDOs.  This proved to be the greatest kind of wisdom.  JPMorgan did not suffer as badly as its peers in the Great Recession and it rebounded quickly thanks to some insightful thinking from people like Ms. Duhan.

Nevertheless, greed trumped wisdom in this case.  By coincidence, Kelly Evans made her CNBC London reporting debut today with a report on the JPMorgan story. 

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