By SERENA NG and DAVID REILLY
March 19, 2008; Page C2
With J.P. Morgan Chase & Co.’s rescue of Bear Stearns Cos., a behemoth in the complex world of derivatives trading has become even bigger, and the business is now more concentrated.
J.P. Morgan has a derivatives portfolio that is the largest by far among U.S. commercial banks. At the end of last year, its portfolio hit $77 trillion in “notional value,” which is the value of the assets underlying these contracts, according to its regulatory filings.
? The Issue: J.P. Morgan, already one of the biggest players in derivatives, is even bigger after taking on Bear Stearns’s trading obligations.
? Background: In rescuing Bear, J.P. Morgan had an interest in helping to prevent a broader market meltdown that could have hurt other firms it trades derivatives with.
? What It Means: As financial institutions merge, the risks that derivatives are meant to disperse could become more concentrated among fewer players.
The company’s positions were more than twice as large as those of Citigroup Inc. and Bank of America Corp., according to data from the Office of the Comptroller of the Currency. They run the range from straightforward stock futures contracts to interest-rate swaps and more complex agreements with individual trading partners.
Analysts say J.P. Morgan’s large position in the derivatives markets meant it had an interest in seeing Bear Stearns’s problems sorted in an orderly way, because Bear is another big derivatives player. Bear’s failure might have weakened the entire market.
Now, the planned acquisition of Bear means the risks that derivatives are meant to disperse may be getting more concentrated among fewer players. J.P. Morgan’s influence in the market has risen because it is now standing behind Bear’s derivatives book.
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