JPMorgan Chase & Co's decision to radically change the
way risk was measured in its Chief Investment Office is likely to dog the bank
in the developing crisis over the big trading losses it has suffered, HuffPo writes. The move, which allowed the bank to disguise
the level of risk that the CIO was taking in its trading, could become a major
focal point of investigations by the U.S. Securities and Exchange Commission
and the FBI, for mer regulators said. It also will likely become part of
investor cases in lawsuits against the bank and its executives.
When JPMorgan CEO Jamie Dimon announced on May 10 that the
company had lost at least $2 billion through "egregious mistakes" in
trading, he also said for the first time that the bank had changed its model
for measuring so-called value-at-risk in the CIO where the derivatives
portfolio was managed. The change made
the CIO's portfolio, which totaled about $375 billion, appear to be a lot safer
than it actually was and gave traders more leeway to make risky bets. The rest
of the bank's divisions ap parently kept to more conservative modeling.
The old model would have sounded alarms by showing that the
CIO could lose $129 million, or more, in a day during the first quarter - a
higher reading than during the financial crisis. But the new model cut that figure almost in
half, to $67 million, clouding the view inside and outside the bank of the
danger it faced. That figure was lower than the $69 million reading at the end
of the prior quarter….
Read all about it at http://www.huffingtonpost.com/2012/05/18/jpmorgan-chase-change-risk-measurements_n_1528738.html
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