JP Morgan Chase – Credit Derivatives, Interest-Rate Swaps

JPMorgan Chase & Co. is a global financial services firm with assets of $2.1 trillion and operations in more than 60 countries. For years, the company made big profits by arranging complex investment deals involving credit derivatives for states, cities, hospitals, school districts and other entities that sell debt in the municipal bond market.

In 2007, the collapse of the subprime market and the subsequent liquidity squeeze caused many of these financing arrangements to sour, forcing countless public agencies to come up with billions of dollars to pay for increased interest payment costs.

JP Morgan also is credited with launching the credit derivatives market back in the late 1990s, a market that billionaire investor Warren Buffett has often referred to as “weapons of mass destruction.”

Credit Derivatives, Interest-Rate Swaps

For the past two years, JP Morgan Chase has been the focus of a federal investigation into practices in the municipal swaps business. Most recently, an SEC investigation centered on JP Morgan's handling of interest-rate swaps for the Bethlehem Area School District.

Interest-rate swaps are complex financial instruments and tied to variable interest rates. If interest rates remain favorable, purchasers like a municipality benefit. If market conditions create an unfavorable interest rate environment, however, the bank responsible for initially selling the swap receives higher payments from the purchaser.
Adding to JP Morgan's legal issues is the Bernard “Bernie” Madoff affair. In January 2009, JP Morgan admitted that it had pulled its own money out of two hedge funds connected to the Wall Street money manager while leaving hundreds of European clients exposed. Ultimately, those clients lost at least an estimated $30 million after news of Madoff's alleged $50 billion Ponzi scheme came to light.

If you are an individual or institutional investor and have concerns or questions about your JP Morgan investments, contact Mark Maddox. We can evaluate your situation to determine if you have a claim.

JPMorgan Under Investigation
Credit Derivatives, Interest-Rate Swaps Blog