Last week’s announcement that JP Morgan made a $2 Billion Loss from a single trade position has brought further controversy over the banking crisis. The investment bank is reported to have a trading position in excess of $100 billion, reportedly for to hedge it’s exposure in other areas. The true extent of the loss could indeed be found to be much larger, particularly if the markets continue to go against JP Morgan.
JP Morgan has entered into a number of complex and risky derivatives much like those at the center of the financial scandal in 2008. Senior management sanctioned the risky trades in order to make use of significant cash deposits available at the time and “hedge” against exposure on the company balance sheet. The Bank has dismissed the $2 billion trading loss as an error which will be covered as JP Morgan are still expecting to make an overall profit this year.
The scandal will no doubt give rise to further banker bashing as both the public and investors continue to lose their trust in the major Banks. The government will now have added pressure to proceed with plans to split the retail and investment activities of the Banks. It is clear that the banks have become too big to fail and are continuing to engage in risky transactions which are effectively bankrolled by the taxpayer.