J.P. Morgan could see its revenue fall by as much as $3 billion if over-the-counter derivatives move onto exchange, according to a Sanford C. Bernstein analyst.
The analyst, John McDonald, made the worst-case scenario statement after meeting Steven Black, Co-Chief Executive Officer at J.P. Morgan. Derivatives regulation may move OTC derivatives onto exchanges, having a detrimental effect on the $6 billion revenue JP Morgan makes through derivatives transactions per annum.
Treasury secretary Timothy Geithner recently told the Senate Agriculture Committee “The lack of transparency in the OTC derivative markets, combined with insufficient regulatory power to police these markets, left our financial system more vulnerable to fraud and manipulation.
The $3 billion figure is the highest figure given by analysts on potential losses for J.P. Morgan. Earlier in the week UBS analysts put the figure at $2 billion, although they added the caveat that it is unlikely and perhaps impossible that regulators will push all OTC activity on exchange.
In the meeting with the Senate, Geithner seems adamant that regulatory intervention is inevitable. We should not rely exclusively on decisions by the private sector to determine the scope of the central clearing requirement,’ he said.