JP Morgan says downgrade will impact derivatives business
JP Morgan Chase’s credit rating agency downgrades yesterday will affect its derivatives business, the bank told RiskNews at the end of the London trading day today.
Rating agencies Standard & Poor’s (S&P) and Fitch have lowered JP Morgan Chase’s long-term credit rating from AA to AA-. The rating agencies acted after JP Morgan Chase warned that it expects third-quarter earnings to be well below the second quarter. The bank cited a weak trading performance and losses on loans to telecom and cable companies.
In a conference call to credit analysts today, S&P analyst Tanya Azarchs said she was “very disturbed” by the “uncharacteristic” trading performance of JP Morgan Chase. Azarchs said JP Morgan Chase told S&P it had lost money from proprietary trading and that this was “not from one big position but several”. She would not comment on the nature of these deals. JP Morgan Chase offered no comment either.
S&P analysed JP Morgan Chase’s derivatives portfolio and found it had $43 billion of net collateral counterparty exposure. “This is a high number,” said Azarchs. “But the ratings are not altogether disturbing. It tends to be relatively high quality,” she added.
Azarchs warned that if JP Morgan Chase is downgraded again it would have a significant effect on its derivatives trading business. “It would put the bank as a counterparty on derivatives, for example, out of the A range,” she said.
One US bank analyst suggested that S&P was giving JP Morgan Chase “too much slack” by not being tough enough on the firm. But Azarchs replied: “It’s important to keep it in perspective. It is still profitable, and we expect [JP Morgan Chase] to be profitable in every quarter of this year.”
William Harrison, chief executive of JP Morgan Chase, said yesterday he was disappointed with his bank’s results. “As much as we have focused on reducing credit portfolio concentrations in recent years, it is clear that further reductions are necessary, and we will continue to address that issue as an integral part of our credit policies.”
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
EBA to address double-counting caused by new capital floor
Existing EU capital add-ons for model risk would duplicate new Basel floor on internal models
The Emir error reports that cost banks millions
Dealers lambast onerous EU requirement to notify clients of all errors and omissions
Basel stops short on wrong-way risk
New guidelines a step in right direction, but experts warn they won’t prevent another Archegos
Trump 2.0 bank supervision: simpler but no soft touch?
Republican FDIC vice-chair Travis Hill wants more focus on financial risk instead of process
Iosco mimics industry codes to tackle pre-hedging dilemma
Advocates breathe sigh of relief, but Iosco release carries suggested restrictions
Ice’s AFX swoop shines spotlight on Ameribor prospects
CEO John Shay steps down after exchange group buys firm for mortgage and index synergies
Barr’s Fed exit likely to delay, but not destroy, Basel III
Market risk, op risk and leverage ratio all in the sights of Barr’s potential successors
FCMs call for more oversight of self-clearing CCP members
Clearing firms worry that PTFs and market-makers joining CCPs en masse will increase systemic risk