JPMorgan Unit’s Investments Raise Questions

Bets on distressed companies may prompt compliance issues

   

As the fallout continues from JPMorgan Chase‘s (NYSE:JPM) recent trading loss of $2 billion, more questions are emerging about the level of risk the bank’s executives are willing to take.

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.

JP Morgan 200x200 JPMorgan Unit's Investments Raise Questions
Are Bigger Problems Ahead for JPMorgan?

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.


Article printed from InvestorPlace Media, http://investorplace.com/2012/05/special-jp-morgan-units-investments-raise-questions/.

©2014 InvestorPlace Media, LLC

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