Boston, MA 09/02/2014 (wallstreetpr) – Diversified financial services provider JPMorgan Chase & Co. (NYSE:JPM) operational risks have come under greater scrutiny in view of the threats posed by human error, frauds, external threats, and litigation. If the company filing is any indication, the amount set aside for this purpose had witnessed 6.7% increase.
Operational Risks
Though the company’s Chief Executive Officer, Jamie Dimon, is ready to spend billions of dollars on cyber security and compliance, the regulators seemed to be taking a strong view about the potential losses it could suffer and treated it as if the risks were higher than ever before, Bloomberg reported.
JPMorgan Chase & Co. (NYSE:JPM)’s operational risk-weighted assets had increased 6.7% to $400 billion in the second quarter, the report said quoting a filing in August. The regulators have devised the measures of calculating risk-weighted assets by determining the capital requirement to be held against any possible losses from external threats, frauds, human error, and litigation.
The regulators arguments gain momentum after the company had to resolve $23 billion legal settlements in the last year apart from the cyber attack reportedly discovered last month. As a result, the regulators push the company to lift its buffer against unpredictable losses.
Stranded Capital
There are also other banks facing similar situations. Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C) have racked up over $100 billion in legal costs after the financial crisis.
JPMorgan Chase & Co. (NYSE:JPM) had called such amount as stranded capital that cannot be used for either share repurchase or dividends. In January, the company’s Chief Financial Officer, Marianne Lake, expressed her hope of convincing the regulatory methodology of calculating risks as unfair and that it failed to reflect the current safety level. She also termed the model as backward looking and indicates a higher amount of risk even after five to ten years of settlements.
Analyst Comments
Fitch Ratings Senior Director, Justin Fuller, said that it was hard to ignore the big litigation costs that the banks had undergone in the past though the financial institutions have often claimed of making big investments in compliance and technology and yet not getting due credit for it.
