JP Morgan On Probation

In 2000, John Morgan founded J.P. Morgan Chase & Co by merging J.P. Morgan & Co. and Chase Manhattan Corp., thus creating a major investment and commercial bank. In early 2012, the bank suffered major losses (over $5.8 bn) because of its London office’s unsuccessful market play. However, the bank’s income declined only by 10% down to 9.88 bn.

Strange as it may seem, by investors’ reaction to the news was the opposite: on Friday, July 13^th, they started heavily buying JP Morgan’s stock. They say the hardest times for the banks are over and the major problems seem to be resolved. JP Morgan reported about the losses in May 2012.

Bruno Michel Iksil, a trader for JP Morgan’s office in London, is said to be responsible for the losses. His actions resulted in hedge funds playing against JP Morgan in the market of credit default swaps. As a result, JP Morgan lost $4.4 bn in Q2 2012. According to Christopher Willer, a financial analysts, even if the worst scenario takes place, the bank’s extra losses won’t exceed $1,7 bn.

Last Friday, JP Morgan’s stock appreciated by 5.96% despite major losses. According to , this rally allowed investors partially recover from those losses that occur after the price started falling in April. Since then the bank’s stock depreciated by almost 20%.

JP Morgan’s net income was around $4.96 bn in Q2 2012. In Q1, 2012, the bank earned $4.9 bn.

According to , it is very difficult to regain investors’ confidence. That is why JP Morgan will remained “on probation” for a season. The bank’s income is still solid, which means the top managers have already reconsidered their risk-management approach.