JP Morgan Chase in major ramp-up of portfolio management technology

Masters, speaking during her keynote address to delegates attending Risk’s Credit Risk Summit 2002 USA on Wednesday, said portfolio management had come to the fore following the tough market conditions during the past year. “In 2002 we have paid a considerable amount of dues in terms of intelligence,” said Masters. “But it has been a great year for advancing the cause [of portfolio risk management],” she added.

Masters said bank portfolios were feeling a considerable amount of pain due to widespread ratings deteriorations, sudden liquidity crises, abnormally high default rates combined with lower-than-expected recovery rates – particularly on telco debt, and outsized exposures due to fallen angels, or as Masters termed them, “falling knives”.

JP Morgan warned of weak third-quarter results in mid-September, and admitted that plans to reduce credit risk concentrations in the firm’s loan book had been overtaken by market events (See: JP Morgan Chase concedes failure in loan hedging programme). The results outlook prompted rating agency Standard & Poor’s to downgrade the bank by one notch, a move mirrored by rival agency Moody’s on Wednesday, which downgraded JP Morgan Chase’s long-term rating from Aa3 to A1.

Masters said the overall growth of the credit derivatives market had played a significant role in helping the bank to hedge its exposures, but added that the poor development of the US high-yield credit default swaps market has created severe difficulties in hedging high-yield exposures.