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JP Morgan’s Five P’s and Bernie Madoff

Posted by Larry Doyle on June 27, 2012 7:59 AM |

Have you ever had an experience while reading something when you stop and think, “They didn’t just say that, did they?” I had just such an experience yesterday while reading a Bloomberg commentary on JP Morgan.

Under the heading of “You cannot make this stuff up,” I virtually gagged when I read of why JP Morgan had chosen not to  allocate credit to Chesapeake Energy. Given current issues with Chesapeake, it would appear that JP Morgan’s decision not to engage Chesapeake was prudent. Then why the gag? 

Put your coffee down as Bloomberg writes:

In one meeting of JPMorgan executives in 2008, it was decided that Chesapeake didn’t meet at least portions of the bank’s so-called five P’s of lending: people, payment, protection, purpose and perspective, the people said. Those five P’s, which other banks often call the five C’s — character, capacity, collateral, capital, conditions — are used to examine whether a borrower is creditworthy.

I gagged as I envisioned how credit officers at JP Morgan may have applied those P’s to their own brethren on Wall Street (AIG especially), to a vast swath of individuals applying for mortgages, and ultimately internally upon themselves. While these points could be open to vigorous debate without gaining real clarity, let’s zero in on one situation in which JP Morgan had significant engagement and exposure.

What happened to the five P’s at JP Morgan in the midst of their longstanding dealings with one Bernie Madoff?

I guess in situations such as that, there are a sixth and seventh P. What might those be?


If we were to utilize the 5 C’s approach, then the 6th and 7th C’s applied to Mr. Madoff’s enterprise for Wall Street banks would be CASH COW.

No, you really cannot make this stuff up.

Funny how this works? Not very funny for those entangled in the Madoff fiasco who continue to suffer.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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