Lesson Learned Case Study

The bank at some point received negative attention for issuing credit to arms companies, including companies like Boeing, Lockheed Martin, General Dynamics, Textron, Colbun, BAE Systems and EADS. Some companies within the bank’s portfolio have also been involved in environmental and labor rights violations scandals, for instance Wal-Mart and Total USA. This negative attention may lead to loss of investor confidence in the bank.

Jp Morgan has done a few negative things such as being accused of suppressing the economy when things were good. Another is that during the US economy crisis, Morgan put together group of investors that unwrote a $62 million bond that was issued to the US government, it saved the economy but during the process JP Morgan and his investors made a good amount of profit causing them to become unpopular. Morgan faced criticism that he had too much power and was accused of manipulating the nation’s financial system. Morgan has also paid a president to take over Roosevelt's place although the president died so therefore Roosevelt had to become the president by default.

This can be seen through the positive correlation of 0.59601630 from the use of options contracts from May 1991. Also, the overall correlation is effected and yields a correlation of 0.18316670 which indicates that the hedging program was not applied to minimize risk. This is further supported by the fact that the variance of the unhedged cash flow is smaller than the variance of the hedged cash flow as shown in the below table.

In the summer of 2012, JPMorgan Chase, the largest leading U.S. bank, announced trading losses from investment decisions made by its Chief Investment Office (CIO) of $5.8 billion. The Securities and Exchange Commission (SEC) was provided falsified first quarter reports that hidden this massive loss.

The current 50% hedging policy executed at the fund level has served well for OTPP for the past ten years, contributing to the fund’s positive returns. The FX Hedge Program not only has minimized the downside risk, but has also limited the upside potential. If OTPP decided not to implement a hedging program in 1996, they would have lost about $983 million CAD over the ten year period (1995-2005) which is valued at 2% of the portfolio. With the hedging program, OTPP was able to reduce the overall loss to about $469 million CAD, but also limited the gain from the depreciation of the pound.(Exhibit 1) Hedging is an excellent short-term risk minimizing strategy for long term investors, sustaining a continual payout of pensions during volatile times in OTPP’s invested currency markets. Currently, approximately 21% of OTPP’s net assets are exposed to foreign currency risk. Consequently, it is essential that OTPP maintain a risk management program of hedging, as slight currency fluctuations can significantly affect the value of the fund. Similarly to continual renewal of swaps, hedging can be a very expensive risk management strategy.

Mr. Brown readily admitted that he was not at ease discussing the most recent approaches to risk reduction or hedging. He had received his MBA from Harvard in the 1960s and had spent most of his career working for a company that had little international exposure. Moreover, he was not familiar with derivatives such as currency options, which until recently were not widely traded. However, Mr. Brown had recently hired an assistant, Mr. Dan Pross, who had some knowledge of hedging and derivatives. As a student at UCLA, Mr. Pross had traded various types of derivatives for his own portfolio and was familiar with how they were traded. Although Mr. Pross did not have a finance background, he was, in Mr. Brown’s opinion, extremely intelligent and highly capable. Mr. Brown suggested that Mr. Pross make a presentation to the senior management on the use of derivatives to reduce risk.

Both the company was providing loans at the lower rates which are against the regulations. The effect was they were bankrupt and there was misutilization of the investor’s money and taxpayer’s money. In the year 2010, the company held huge amount of mortgages which is more than 50% of the America’s mortgages. The effect is that they have sanctioned the loans without following the regulations and the result was that that they were bankrupt and government supported them huge amount of money and other incentives.

This scandal result in losses of $200 million. According to a nytimes article in 1999, insurance experts said that the damages could continue to spread while more evidence comes forward. Even insurance companies that had nothing to do with Martin Frankel suffered financially. These companies are victims because some of them were forced into bankruptcy. Even the companies that were not directly hurt by the fraud suffered losses just from being in the market. Once the public heard about this major scandal, no one wanted to invest in the

According to Mohammad Shehmir, JPMorgan Chase was expected to outperform the market after the Federal Reserve raised the interest rate, but its exposure in the Chinese economy has caused it quite a bit of trouble (Shehmir, 2016). JPMorgan Chase reported in its third-quarter a total of $16.3 billion in direct exposure to China (Maxfield, 2016). The economic situation in China is taking longer to settle down due to fears of institutional investors who are responsible for bulk trading. Retail investors have a strong influence over Chinese markets, therefore, the impact of a downward trend is intensified (Shehmir, 2016).

This case explores the operating exposure of Jaguar PLC in 1984, just as the government is about to relinquish control and take the company public via an IPO. The primary concern of the CFO is that Jaguar sells over 50% of its cars in the US, while its production costs and factories are U.K.-based. This currency mismatch creates operating exposure for the firm that needs to be hedged.

At face value one would conclude that JPM officials did so because they had gains from such inaction. It was discovered that the current Chief Executive Officer (CEO), Jamie Dimon and twelve other current and former executives and directors knew about the Bernard Madoff ponzi scheme but failed to disclose this information. As Board of Directors and Executives it was within their primary job description to maximize the profits of the company thereby reaping higher returns for their shareholders. So one might assume their inaction was for the benefit of shareholders and much to the detriment of the unfortunate Madoff victims.

This case explores the operating exposure of Jaguar PLC in 1984, just as the government is about to relinquish control and take the company public via an IPO. The primary concern of the CFO is that Jaguar sells over 50% of its cars in the US, while its production costs and factories are U.K.-based. This currency mismatch creates operating exposure for the firm that needs to be hedged.

Furthermore, Citibank did not intend to hold theses loans. Like many others, Citigroup had suffered unprecedented losses and was facing the prospect of having even more considerable losses. By selling these loans, the bank’s image was greatly improved.

Following that, the expected values for decision nodes 6 and 7 should also be calculated. The following results were obtained:

The move came after Bear Stearns was bleeding cash after word spread about the company’s crumbling position. European banks and other brokerage clients were pulling their investments and loans with Bear Stearns rapidly—and the company was losing billions in a week. In a swift move, the CEO of Bear Stearns, Alan Schwartz, was connected with the FED Chairman Ben Bernake, who agreed to loan money to JPMorgan if the financier company took over the quickly deteriorating Bear Stearns. It is argued that the FED was right in doing so as this move not save one of the largest American investment banks thus preventing a crushing blow to the US economy.