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Selected Case

published: 24 Mar 2014

  • Topic: Economics & Finance
  • Industry: Banking and Finance
  • Region: Global

Abstract:
In the spring of 2011, JPMorgan Chase realised that their synthetic credit portfolio (SCP), which represented less than 1% of the bank’s total assets, had grown to become more than half of the bank’s total risk. An article in the WSJ would soon make it public knowledge that the bank was in a difficult situation. How could an institution known for its diligence, which had survived the global financial crisis, and was led by a highly respected CEO (Jamie Dimon), end up in such dire straits?

Pedagogical Objectives:
Having cultivated a reputation for sound risk management and business decision making, the 'London Whale' episode raises the following question around JP Morgan's internal controls: Why did standard market risk management practices for financial institutions, such as Value-at-Risk (VaR), not prevent such an extraordinary loss, and where did the process fail? In addition, the soon-to-be published Case (B) will explore the effectiveness of the indictments and penalties handed out by the US courts by the summer of 2013. Will they have any impact on risk-taking by financial institutions? The case offers a backdrop for a discussion on the effectiveness of regulations.

Keywords:
Risk Management, Market Risk, Portfolio Management, Chief Investment Officer (cio), Business Decision Making, Value-At-Risk (var), Credit Risk, Financial Regulation, Corporate Governance, Case Studies: Value Creation, Strategy and Implementation


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