JP MORGAN FINANCIAL CRISIS By, Team Japheth Task As Presented The task presented to us was to find out what went wrong with JP Morgan during 2008 crisis and the reason for the reduction of profits by 50% ,how they could have overcome the crisis and also the preventive measures they should take in the future to not get into any such crisis. In this report we have given a detailed report of: • What went wrong in JP Morgan • How they could have avoided the crisis • What measures they should take in future to not go into crisis Reasons for the Downfall of JP Morgan JP Morgan being the colossal financial entity that it is, has been deep rooted into the American economy and its lifestyle. Even though the same can be …show more content…
Strategic Decision: JP Morgan knew that it is entering an era of destruction. The only way it could have saved itself is by creating a scenario where the US Government bails out the company. JP Morgan entering a market of volatility could have hedged its investments by issuing credit default swaps to companies that are well rooted into the American Economy and the absence of these companies would create a dent in the American way of life. Companies like AIG insurance and General Motors that provide employment and other benefits the average American man are necessity in the economy and the government realizing this would back these companies up in dire situations which means that JP Morgan could have recovered quite a bit of its losses that it incurred during the crisis, if it only realized the strategic position of these companies as American government would have bailed them out if the situation of bankruptcy ever occurred due to the lack of funds when it was time for paying its debts. 2. Sale of the securities at the earliest: JP Morgan followed the herd. JP Morgan only saw the profits that were coming and not the long term losses it was incurring. They should have sold their securities the moment they realized that the market is going down. 3. Better Risk Management: JP Morgan should have consulted their internal risk management department regarding big bets such as credit default swaps. Decisions should not have been made on the reports published by credit …show more content…
Internal Compliance Departments: Compliance teams within the management of a company have a very important role to play in managing the risk that a company is exposed to. J P Morgan should concentrate on strengthening its internal compliance departments as well. Moreover, the internal compliance team must be organized in a systematic manner to monitor all the various business divisions within the company. If the compliance department raises an alert against any action that the company is taking, that might cause exposure to potential losses or penalties, its direction and recommendations must be given the utmost priority and put to action immediately. From the point of view of internal compliance teams, not only should laws and regulations be complied to, but also the general financial health of the company must be complied with. This gives the company a two-step risk management framework, one from within the risk management department itself and another through the functioning of its compliance team. The compliance team must ensure that there are certain standards and numbers that are always maintained constantly across all the business units of the
House of Cards describes in particular the complicated series of events that led to the downfall of Bear Sterns in March 2008. Its actual appeal, however, deduces from its complete and careful analysis of the history of the firm since its origination as an upstart brokerage firm in 1923 and a gripping account of the demise of Bear Sterns in 2007. This failure prognosticated a lot of issues that would eventually stultify the firm, and the author puts forward that its deviation from various historical operating practices led to its ultimate sale to JPMorgan Chase at $10 per share, down from over $170 just a year earlier.
...o turn their securities back into AIG and demand billions of dollars. AIG was faced with a problem and they had to start asking subsidiary insurance companies to liquidate their pension and insurance holdings so they could cover their losses. If this happened those customers would have received a fraction of the money due to them and would ensure a global crisis. Of all the people complaining about AIG, Goldman-Sachs was doing it the most frequently and the loudest. An audit of AIG showed that they had no liquidity to pay off the bulk of what they owed so the Federal government issued a bail out of $80 billion which later elevated to $200 billion. Goldman-Sachs received the largest percentage of that $200 billion and would have torched the entire country in order to get that money that felt they deserved; and the housing-market bubble was just at the beginning of it.
Corporate crime has become increasingly common over the past couple of decades. It seems that every big corporation today has some type of dark side. With the constant trials against corporate officials it seems that many high profile companies can no longer be trusted. We can no longer look at our banks the same either; JPMorgan Chase in the recent two years can be added to corporate crime list. They have committed crimes against its costumers and the government by rigging their bids for investments for years, improper home insurance rates, and overcharging military veterns. From this they stole millions of dollars to put in their pockets. What makes this case interesting is that Chase is one of the top banks in this country. Millions of Americans trust this bank with their life savings it turns out they trusted their money with criminals.
... J. P. Morgan and Company to reflect his power. Morgan also got a stranglehold on several other industries by buying out Carnegie Steel, oil companies, and railroads. Morgan soon went back to his roots and started acquiring more banks, financial firms, and insurance providers. (Moritz 35-39) Today, J. P. Morgan and Company is known as JPMorgan Chase, easily the world's largest global financial services firm.
For Chase bank the mission and vision should always be clear to their customers. "At JPMorgan Ch...
There were many factors that triggered the financial crisis in 2008, with one of the main ca...
Grant, Peter. "The Giant J.P. Morgan and The Panic of 1907." The New York Daily News 20 Mar. 1998: 49 "J. P. Morgan". Dictionary of American Biography. New York: Charles Scribners and Sons, 1934. Vol. 7 "J. P. Morgan". International Directory of Company Histories. Chicago: St. James's Publishing, 1990. Vol. 2
Several other banks had also extended their assistance but Morgan refused their aid and had them give him their shares. J. P. Morgan had years of experience dealing with bankrupt railroad companies so he started with the financial restructuring of the Richmond Terminal. He appointed Samuel Spencer president of the company and moved on to take over a group of poorly structured railroad companies, turning them into a smoothly functioning regional system. In fact earnings over the next decade tripled. Slowly but surely, Morgan brought order to the chaotic mess of the business world. He also loaned the government $65 million dollars to help compensate for the dwindling gold
•Merrill Lynch, a massive investment back on Wall Street was the starter of the biggest mortgage companies to go wild. Merrill plan was to do a subprime mortgages that would get people to fail on their own toxic products. He knew those debts would stack up and then people would not afford to pay off that mortgage. His plan was to secretly bet against or insuring themselves to fail. Merrill only focused on making more money by doing subprime mortgages. Therefore, the plan was to get mortgages that would not be sustained and redo it into a subprime mortgages. Indeed he would sell them off other corporation that would not question the investment and would more likely not be able to understand the possible risk of buying it. Merrill was doing
The Goldman Sachs Inc is a Wall Street’s titan that was able to survive during a financial crisis as a result of deceiving its clients. During the financial crisis it was charged for deceiving its clients for having sold to them mortgage securities that had been designed secretly by John Paulson’s hedge-fund firm. After designing the securities John made a killing betting for the collapse of the housing market. But Goldman denied the securities and Drexel Burnham who was carrying out investigations succumbed as a result of criminal insider trading. Due to that the charges the firm was to undergo were unfounded and Goldman fought to defend its reputation. Civil charges against Goldman and Fabrice Tourre which was one of Goldman’s star traders marked one of the major attacks that the government made on Wall Street. According to Roben & Paula (2010) the deals that the company had made are believed to have caused the financial crisis that was experienced by the nation as well as the whole world.
Rather than riding out the short-term losses, which weren’t really losses, but rather negative cash flows, MG’s management panicked. In early 1994, a group of German banks issued a bailout of about $1.9 billion in order to save MG. MG used the money to close its hedge positions. The obligations to MG’s customers remained, completely unhedged after the bailout. In effect, MG’s management made a critical mistake. They saw the hedging activities as the problem and misunderstood the nature of their losses. In total, MG lost about $1.8 billion. Unfortunately for MG, if they had held onto the derivative positions, they could have seen huge gains in 1994 as oil prices soared. The firm did not go bankrupt, but did leave the US oil markets completely in 1996. Ultimately, Arthur Benson, the trader constructed MG’s hedging strategy, was fired, even though the board approved his strategy. He later sued MG for failing to implement his strategy properly and attempting to blame him for their actions. Five members of the MG board were fired and 7,500 jobs were cut to reduce costs, but in the end MG survived and was able to return the bailout money within a couple of
JPMC with assets of $2.4 trillion has about 260,000 employees. Its stock is a component of the Dow Jones Industrial Average. Under the J.P. Morgan and Chase brands, it serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients. As the largest bank holding company in the US, JPMC has more than 5,600 branches in many states, and is among the nation's top mortgage lenders and credit card issuers. It holds some $128 billion in credit card loans. The firm's subsidiaries include the prestigious JPMorgan Private Bank and institutional investment manager JPMorgan Asset Management (with some $2 trillion under supervision). It also owns private equity firm One Equity Partners.
The Company’s advisor, Deutsche Bank, convinced Metallgesellschaft AG to close all positions, taking $1.5 billion in losses, with the aim to prevent additional losses. As can be seen from the Figure II below, Deutsche Bank should have been calmer as the market rebounded with oil prices starting to soar in 1994, an increase of about $8 dollars per barrel in few months. This increase would have highly benefited the MGRM...
Under CEO Philip Purcell’s management, Morgan Stanley’s infrastructure and systems did not grow with the needs of employees and customers, nor did it apply future technologies to their current systems, it’s focus was reducing overheads to maximize profits in the short term. Many brokers resigned, taking with them valuable portfolios and profits. In June 2005 Purcell resigned, and John Mack provided new leadership. The firm then began to change its information systems and provide better services for clients, which saw stronger ethos and integrity within the employees.