JP Morgan Chase & Co. recently announced that its loss on bad credit derivative bets has grown from the ‘small’ sum of $2 billion to the much larger sum of at least $5.8 billion. The banking conglomerate’s stunning loss has provoked outrage and renewed calls by politicians and the public alike for tougher regulations of the banking industry and these risky credit swaps.
JP Morgan did manage to put a positive light on the recent news of the $5.8 billion loss though, by stating they made an overall $5 billion profit for the second quarter of 2012. As a bank with assets totaling over $2 trillion, some stock analysts and industry-watchers are starting to question whether JP Morgan Chase is literally too big to be managed effectively. It is almost as if the $5.8 billion loss slipped through the cracks and went unnoticed for some time since the bank is so large, according to analysts.
Talk is starting to heat up about investor lawsuits since the losses keep piling up and management has constantly had to revise its filings once they are found to be inaccurate. While JP Morgan has instituted new risk management policies for the firm, regulators and investors want to know more about whether these losses were simply a few employees behaving poorly or more indicative of a lax and free-wheeling culture at the firm.
It will be important to watch in the coming months whether the $5.8 billion loss continues to grow. For all businesses, no matter what size, it is critical be diligent in addressing risky business units before it is too late. Compliance with relevant state and federal laws should be a given, but what successful business should know is that it is always better to seek legal advice early, at the first hint of trouble, rather than having to address issues later as they balloon.