JP Morgan’s Great Loss

JP Morgan has always been considered as the strongest and most solid bank in the US financial market. However, recently, it suffered a loss of more than 2 billion dollars in 6 weeks in the “London Whale” case.

                     (Source: http://www.allvoices.com )

Last year in September, the same case happened in Swiss Bank, causing a loss of 2 billion dollars. After only half of a year, JP Morgan trod the heel.

The primary reason for the great loss may lie on the mistakes of the traders since these banks highly rely on the ability of the traders. Nevertheless, the banks should also be responsible for the case as they lack the general management of their traders.

The great loss of the JP Morgan leads to a variety of effects on the financial market.

First, the stock price of JP Morgan fells sharply. Just two days after the loss, the stock price dropped by 12% and the market share declined by 1.88 billion US dollars. After then, it encumbered the Dow Jones Index by 25 last Friday. Other banks, including Morgan Stanley, Goldman and Citi, also dropped by more than 3%. The decrease of the financial sector may be due to the fear of stricter regulatory policy carried out by the government.

Second, the loss may strongly affect the financial market, even lead to another crisis. Fitch has already downgraded the rate of JP Morgan from AA- to A+. If the case were not getting better, it could lead to a very serious situation. Under the background of economic crisis, the US still needs five to ten years to recover. The great loss blocks the recovery process. To solve this problem, the US government may strict tighten the regulatory policy on financial market to lower the risk.

Third, the case will also endanger the Obama’s election. Obama has already urged the government to tighten the regulatory policy on financial market. However, if the case were not dealt with properly, Obama might lose the favor with the voters. Remember that four years ago, it was Obama who took advantage of the subprime fallout to lead the voters against the Republicans. Obama would definitely not want the same history happening again on himself.