Monday 6th July 2015
NEWS TICKER: MONDAY, JULY 6TH: Morgan Lewis is enhancing its United Kingdom and global employment law capabilities with the addition of employment investigations and data privacy partner Pulina Whitaker, who joins the firm today from another global law firm. Her arrival, says the firm, strengthens the full suite of global client services offered from the Morgan Lewis London office, including those connected to finance, corporate, energy, funds, and litigation - Leading shares in European bourses will continue to struggle today as investors look for direction from European leaders over their response to the Greek referendum decision yesterday. In Asia, Japan’s Nikkei retreated -2.08% while Hong Kong’s Hang Seng went down by 4% and the Shenzhen Composite down by 4.69%. The Shanghai Composite stabilised around 3,709, up 0.61%, as China Security Finance Corp, the institution which managed short selling and margin trading, will receive a capital boost to 76bn “to maintain financial market stability and expand its business".; it is actually something of a turnaround, as Chinese equities have been under pressure for over a month now. In Australia, equity markets are trading into negative territory with the S&P/ASX down -1.14% while AUD/USD broke to the downside the strong support lying at 0.7533 (low from April 2) and is heading toward the following one at 0.7414 (low from October 2010). Tomorrow, the Reserve Bank of Australia will release its interest rate decision. The US dollar is broadly higher against G10 as only the Japanese yen is adding gains versus USD. German Chancellor Angela Merkel will meet French president François Hollande later today. Greece’s main creditors have more pressures on their shoulders; analysts suggest that they will be more willing to provide significant debt relief measures. The next payment is due to the ECB on July 20th.

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Lessons from an Industry Titan: Jamie Dimon’s Testimony

Friday, 15 June 2012 Written by 
Lessons from an Industry Titan: Jamie Dimon’s Testimony This week, J.P. Morgan Chase’s CEO, the highly regarded Jamie Dimon, testified before the US Senate banking committee regarding the failures of its Chief Investment Office (CIO), the group responsible for certain well-publicized losses. We thought his testimony provided more than a few lessons on governance matters and the state of the world generally. Here they are: http://www.ftseglobalmarkets.com/

This week, J.P. Morgan Chase’s CEO, the highly regarded Jamie Dimon, testified before the US Senate banking committee regarding the failures of its Chief Investment Office (CIO), the group responsible for certain well-publicized losses. We thought his testimony provided more than a few lessons on governance matters and the state of the world generally. Here they are:

"[W]e are still reviewing the facts...”

Lesson: Never speak out publicly in a definitive way until you fully know the facts.  You will not fully know the facts for months.



"...I will explain everything I can to the extent possible."

Lesson: Even for Dimon, transparency matters.

"CIO's strategy...was poorly conceived and vetted.  The strategy was not carefully analyzed or subjected to rigorous stress testing.... CIO's traders did not have the requisite understanding of the risks they took.”

Lesson: Didn’t we learn this lesson in 2008? Back then we learned that some strategies had assumptions that seemed poorly founded in retrospect. This was particularly true about the behavior of the mortgage markets and their derivatives.  Guess the lesson is that most people never learn this lesson. Before a system or strategy is implemented, and periodically thereafter, management (including the board) should ask the probing questions. Make no assumptions on this score.

"Personnel in key control roles in CIO were in transition and risk control functions were generally ineffective in challenging the judgment of CIO's trading personnel.”

Lesson: The press reported that the CIO’s then-current chief risk officer began to internally express his concerns about London office trading strategies last year. This past January, he was replaced as the head of risk by a former trader who, at least according to the press reports, had no prior risk management experience. This lesson relates to human nature: it's very hard to appreciate someone who has a different point of view. Watch out – he may be right.

"Risk Committee structures and processes in CIO were not as formal or robust as they should have been.”

Lesson: Assessments have to be substantive, robust, and “real”, and be tested and documented regularly as assumptions and/or reality changes. Structure, process and formality may not protect you from all losses, but they can provide a protective shield that will hopefully mitigate them. Be sure to build your protective shield. 

 

Deborah Prutzman

Deborah Prutzman is the founder and CEO of The Regulatory Fundamentals Group (RFG), a New York-based firm that designs and implements business and risk solutions for alternative asset managers and institutional investors. RFG's senior-led team employs a robust suite of tools, including practical alerts on new and potential industry developments and its powerful RFG Pathfinder® knowledge management platform which simplifies the challenges of operating in a regulated environment.  To learn more about The Regulatory Fundamentals Group call (212) 537-4058, email a representative at Information@RegFG.com or visit RegFG.com

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