London whale betrays an elephant still in the room

Tue Jul 3, 2012

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The JP Morgan case demonstrated clearly the continuing huge scale of some of these major prop desks


By Neil Wilson

In early May, the markets were astonished to learn of an estimated $2 billion trading loss incurred by the so-called 'London whale’ – due to some ill-judged activity on a proprietary trading desk, based in London, operated by JP Morgan.

The news was indeed surprising on a number of levels. JP Morgan was, rightly, seen as one of a select few leading banks that came through the financial crisis relatively unscathed, and with a reputation for sound risk management further embellished. Furthermore, JP Morgan had been one of the leading pioneers of derivatives since the 1980s – and seen as one of the savviest operators in the field, particularly in credit derivatives, where these losses seemingly occurred.

On another level, however, the losses should probably not be seen as all that surprising. After all, they follow a long line of other bank trading losses – often due to so-called...

ISSN: 2151-1845 / CDC10004H

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