Attention has focused on the Special Investments Group at JPMorgan, part of the bank’s Chief Investment Office (CIO), which invests in high-risk, distressed companies, including the bankrupt telecommunications start-up LightSquared, The Wall Street Journal reports.
Those investments didn’t contribute to the $2 billion loss, which reportedly came from the firm’s London office. However, in light of the debacle, the firm is reevaluating the presence of the Special Investments Group within its CIO.
As a federally insured bank, JPMorgan will soon fall under the Volcker rule, which will reduce the type of investments it can make using federally insured internal funds. Company officials say the Special Investments Group is funded through debt and equity, not with federally insured deposits.
Experts cited by the Journal disagreed about the Volcker rule’s impact on investment activities like those conducted by the Special Investments Group.
One expert termed the practice “merchant-banking” and said the Volcker rule applied only to private equity funds. Still, the expert conceded that it wasn’t a good idea for a bank to be involved in distressed investments.