JP Morgan has won Risk magazine's derivatives house of the year award for the second successive year. In a 12-month period that saw the collapse of Bear Stearns and Lehman Brothers, unprecedented volatility in the market and capital injections into financial institutions by governments across the globe, JP Morgan not only weathered the storm, but arguably finished 2008 in a better position than it had been at the start of it.
One of the highlights for the bank was the acquisition of Bear Stearns last March. The dealer had been chosen to be part of an emergency financing package for Bear Stearns on March 14, agreeing to provide secured funding to Bear, with the Federal Reserve Bank of New York providing non-recourse back-to-back financing to JP Morgan. Just two days later, the bank revealed it would acquire the ailing broker-dealer - in one step adding a world-class prime brokerage to its arsenal. The bank saw an opportunity again in September, buying the banking operations of Washington Mutual for just $1.9 billion - in the process, making it one of the largest depository institutions in the US with $900 billion of customer deposits.
Along with a handful of other banks, JP Morgan continued to provide liquidity across asset classes in the days and weeks after the Lehman collapse on September 15, helping clients replace hedges they had on with the failed broker-dealer.
"It was extremely important for us to maintain a profile in the market following Lehman Brothers," explains Bill Winters, London-based co-chief executive of JP Morgan's investment bank. "We wouldn't have put our shareholders at risk for some greater good, but we did feel a responsibility, as did a few others, to maintain a functioning market-place through a time of crisis."
Along with the derivatives house of the year award, JP Morgan also won credit derivatives house of the year, derivatives research house of the year and bank risk manager of the year.
Winters says the bank has not changed the way it approaches risk management since the crisis broke - although the senior management team meet more frequently to assess risks, analyse counterparty credit and discuss liquidity issues, on occasion several times a day.
"The risk infrastructure worked well," says Winters. "We've obviously taken large losses as we've gone through this, and the fourth quarter isn't going to be any nicer to us, but the losses have come almost entirely from the areas where we knew we would lose money if an environment like this ever occurred - although obviously we attached an extraordinarily low likelihood of that happening."
Like much of the Street, JP Morgan is going through a deleveraging process. However, while many of its competitors are shedding assets, JP Morgan has looked to increase capital and keep its balance sheet more or less intact. It was helped in this by the US Treasury's decision on October 14 to inject capital into nine major banks via the Troubled Asset Relief Program.
JP Morgan stresses it did not ask for the funds. However, having received them, Winters says there are no hidden conditions or strings attached, other than those publicly disclosed that banks will have to curb executive compensation and help struggling mortgage borrowers. "In terms of the business we are doing, that hasn't changed at all," he says.
Meanwhile, Robert Jarrow won this year's lifetime achievement award. Central to the decision was Jarrow's role in bringing the formidable mathematical machinery of stochastic calculus to bear on some of the most pressing problems in finance - in particular, within the Heath-Jarrow-Morton model, developed in conjunction with David Heath and Andrew Morton.
Other winners include Barclays Capital as interest rate derivatives house of the year, Deutsche Bank as currency derivatives house of the year, and BNP Paribas as equity derivatives house of the year.
Risk magazine decided its awards winners in the midst of the financial crisis, during September, October and November. Candidates were asked to submit information on their business in each of the product categories over the preceding 12 months, and those firms or individuals on the shortlist then underwent a series of interviews. Risk then performed a lengthy due diligence process, contacting banks' clients to confirm that trades took place and that customers were happy with the end results.
In making the final decisions, a number of factors were considered, including (but not restricted to) liquidity provision, client service (in particular, helping clients replace hedges, restructure underwater positions and provide risk management advice), quality of post-sales service, infrastructure, systems and organisation.
Derivatives house of the year
Lifetime achievement award
Interest rate derivatives house of the year
Inflation derivatives house of the year
Credit derivatives house of the year
Equity derivatives house of the year
Currency derivatives house of the year
Structured products house of the year
Hedge fund derivatives house of the year
Commodity and energy derivatives house of the year
Islamic derivatives house of the year
Derivatives research house of the year
Quant of the year
Bank risk manager of the year
Derivatives law firm of the year
Allen & Overy
Credit portfolio manager of the year
Hedge fund of the year
Brevan Howard Asset Management
Pension fund risk manager of the year
Insurance risk manager of the year
Sovereign risk manager of the year
Australian Office of Financial Management
Corporate risk manager of the year
Derivatives exchange of the year
Software product of the year
Algo Real Time Credit Engine, Algorithmics
In-house system of the year
Merlin, Credit Suisse
Industry platform of the year
Markit/Creditex Portfolio Compression Platform
Topics: Risk awards 2009
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