ICCT College

ICCT Bldg. V.V. Soliven Ave. II, Cainta, Rizal, Philippines 1900
S.Y. 2023 – 2024

J.P. Morgan Private Bank: Risk Management

during the Financial Crisis 2008-2009

Case Study

In Partial Fulfillment of the Requirements on Financial Management - Case Study

Presented to:
Mariz Kristine Angela Quejada

Presented by:
Zaron Maerille Lapinig
LFACA311N037
 Introduction

In relation to financial management, the financial crisis is requiring serious attention in any
forms of organization or company. The J.P. Morgan provide an evident history as best example to
look at. In year 2008 to 2009, J.P. Morgan test itself how to overcome the huge hole to fill in. The
management were triggered and force release each best person to fulfill and manage the ‘what ifs’
that unexpectedly came. In short it is the unknown risk to solve. The study conducted by Harvard
Business School led by Mikes A., Rose C., and Sesia A. (2010), entitled “J.P. Morgan Private Bank:
Risk Management during the Financial Crisis 2008-2009,” serves as a reference to this study. The
study stated on the first part that the main goal or the core of the business was to provide “high-touch”
service. Subsequently, the model provided by the bank itself which is “managed architecture,”
generate unique challenges and it concludes to the financial crisis.

The main focus of the private bank was to offer tailored fit service to each wealthy individual
client they are rendering with. The open and closed architecture was useful, however to make it
innovative, the managed architecture was introduced. The technicalities of the managed architecture
are the root cause of the unknown what ifs. This architecture challenges the Private bank. On the
other hand, J.P. Morgan is not the only private bank who is suffering from the financial crisis at that
moment. The study shows that the private bank is aware of the financial crisis of the other private and
J.P. Morgan aims to provide uniqueness how to solve its own problem.

The study of Singh M. (2023), indicated that the year 2007 to 2008 is the biggest financial
crisis experienced by United State of America. It started on the year 2006 which the home prices
began to fall and lead to the financial economic crisis on the next consecutive year. Other private
companies collapsed and filed for bankruptcy.1 It concludes that the financial crisis did not start in J.P.
Morgan internally but rather in the economic financial crisis experienced in the country.

Philippines is an independent country. It is highly suggested by the researcher of this case

study to refer on the J.P. Morgan financial crisis during the year of 2008 to 2009 experienced as a
guide to unforeseen factors that may cause trouble that will challenge the financial management. The
report of AMRO Communications Team (2023), shows that the Philippine economy is in upward
slope. On the recent quarter, the Philippine shows an evident number to justify the economic growth.
The major focus of the country was to minimize the inflation experience by the local citizen since it is
not aligned with the current economic growth.

In conclusion, this study aims to provide a financial management guideline aligned with the study of
Mikes A., Rose C., and Sesia A. (2010), entitled “J.P. Morgan Private Bank: Risk Management during
the Financial Crisis 2008-2009” to the Philippine economy in general using the subtopics provided by
the researcher such as Philippine Economy Status and Designed Handling the what ifs, Philippines’
Banking Sector Structure, and Individual Crisis.
Philippine Economy Status and Designed Handling the what ifs

The Philippine economy is considered as a developing country. It is very evident that the
Philippine is recovering from the unforeseen events of the past few years during the past
administration. From the Taal Volcanic Eruption, Marawi Siege up to, especially, Covid-19 pandemic.
These are one of the factors that lead to the Philippines to its downfall. Mendoza R. (2021), Dean and
Professor in Ateneo School of Government provided three major factors with regards to the
downward slope of the Philippine economy from the 2019 to 2020. First factor was the Covid-19
pandemic itself. The spread of virus in out of control, it is the unseen enemy during that event. It
pauses most of the business and transaction, this led to mass unemployment. Second, the
government handling of implementing rules about lockdown. Mendoza claims that the government
failed to strengthen the system. It damages the economy mainly because of the short-term resolution
provided by this kind of restriction. Lastly, the delay of the vaccine. The delay of the vaccine results to
the delay of the Philippine recovery.

To sum up the article of Mendoza, it clearly shows that the two factors (2 nd and 3rd factor) is
related on management of the Philippine government. To make it comprehensive, it is controllable by
the management of the government of the Philippines. Since the 1 st factor is uncontrollable because
the reason is that it is the pandemic itself, the 2 nd and 3rd require the action plan from the government
to manage. Thus, this concludes that the Philippines is not ready to handle the what ifs or the
unexpected risk.

There is no perfect government. In fact, it is stated above in this paper that even United States
of America suffers from the economic financial crisis and there are banks that collapse and filed for
the bankruptcy. In contrast to the previous article, as of August 2023 in accordance to the report of
Bangko Sentral ng Pilipinas (2023), it is very evident the rapid growth of the Philippine economy. All
of the slopes are in upward direction. This concludes that the Philippine is continuously growing and
recovering from the aftermath of the Covid-19 event. The following quotes are the R&I’s Analytical
Pillars and Rating Commentary, as of August 7, 2023:
a. Economic Fundamentals
“The Philippine economy has been performing well despite uncertainty surrounding the global
economy”
b. Fiscal Conditions
“R&I believes that the fiscal deficit will likely improve to a level in line with government target,
due partly to the solid trend of tax revenue.”
c. Policy Management
“In terms of economic policies, the Marcos Jr. administration has continued the previous
administration's policies to address key infrastructure development and structural reforms, leading to
better prospects that the country will make progress in raising income levels, which has been a key
challenge.”
d. Socio-Political Fundamentals
“The high approval rating of President Ferdinand Romualdez Marcos Jr. contributes to
maintaining a stable political environment.”
 The quotation above shows progress reported by the BSP (Bangko Sentral ng Pilipinas). In
despite of the delay of the recovery of the Philippine economy stated by Mendoza during the year
2019 to 2020, the data shows that as of 2023, the progress of Philippine economic growth is rapid
and in upward slopes. To formulate the idea from the report from the BSP, the Philippine created
designed on how to managed the what ifs or the unexpected risk.

According to the House of Representatives article of Press and Public Affairs Bureau (2023), it
is highlighted that the Philippine President Ferdinand Marcos jr. created a notable accomplishment for
the Philippine economic growth. He focuses on project helping ordinary Filipinos, stabilizing economic
growth, promoting the country as investment destination and foreign relations. Thus, Philippine has it
own architecture to resolve its internal affairs.

Philippines’ Banking Sector Structure

From the Philippine government, it is necessary to view the banks available in the Philippines.
This will serve as an overview of the similarities and contrast from the J.P. Morgan. The notable event
of the financial crisis in United States of America is the year 2007-2008 (Singh M. 2023) where the
J.P. Morgan experience the financial crisis during the year 2008 to 2009. Meanwhile in the
Philippines, it is the year 1981 to 1987. The study of Nascimento J.C. (2021), stated that between
1981 and the middle 1987, the Philippine encountered financial crisis. Wherein, 3 commercial bank,
128 rural banks, and 32 thrift banks were failed and 2 private banks were under intervention. From
this statement, it concludes how the financial crisis demolished the Philippine banks. There are many
factors stated for the root cause of this financial crisis. The study of Nascimento focuses on 3 factors
to examined the effects of crisis. These are the following:
(1) the macroeconomic setting and political climate before and during the crisis;
(2) the structure of the financial sector and its liberalization initiated in 1972 and completed in 1981;
(3) prudential regulation and supervision of financial institutions and related institutional practices.

Given from the study above, it provides an idea that financial crisis can happen in any country.
Considering that during that Philippines suffered from the political crisis of martial law that takes place
during the year of 1972 to 1981. These events play huge impact in accordance to the study of
Nascimento factors number 1 that tackles the political climate.

On the other side, it is far different from the current status of Philippines’ Banking sector. As
this paper stated the economic growth of the Philippines as a country on the previous subtopic, it
includes the banking sector as well. The special report of Fitch Ratings (2023), the Philippines’
banking sector indicate and deliver a number of growths starting from the year 2022. The Fitch
Ratings stated that the growths in loan play a significant role for this matter. Fitch Rating believe that
the rated banks have recognized and provisioned for most pandemic-related asset-quality issues.
 The report of Fitch Rating strengthened the fact the Philippines is growing and implementing
its action plan to minimize and abolished the crisis. It is similarly to what J.P. Morgan did during its
financial crisis.

Individual Crisis

It is undeniable that each of individual experiencing a shortage in budget. It will test the ability
to manage personal budget in relation to financial literacy. This part of study defines the significance
of the financial management of an individual to relate to the J.P. Morgan Financial crisis.

The Philippines ranks 30 out of 144 countries in terms of financial literacy. Only 1% of the
adults participated in survey got a correct answer. This triggers the BSP with regards to financial
literacy of the Filipino to advocate and create project to decrease the number of Filipino having less
knowledge about financial literacy (Crismundo K. 2023). The number provided by the report of
Crismundo, is alarming. This signify that the deficiency in knowledge about the finances. In response
to this matter, the BSP proposed four action plan that is expected to help to benefit the Filipino to
declined the number of financially illiterate. These action plans are the following:
1. Collaborating with industry partners to calibrate the Filipino about personal finances.
2. Partnering with private and public sector for training programs.
3. Seminars for teachers in Education section.
4. Calibrating college student to financial decision-making skills before they join the
workforce.

It is important to look for the reason about the financial illiteracy of the Filipinos. The
researcher concludes that the main factor is the poverty line. The data from Philippine Statistic
Authority prepared by Mapa C.D. (2022), as of 2021, the Philippine poverty line is 18.1%. The slope
indicates an upward movement of 1.4%. From 16.7% of poverty line going to 18.1%. The income for
an average family is about Php 12,030 per month. This is very reasonable how the financial literacy
take place. Given the economic situation in which the Philippine is just recovering from the crisis that
led to inflation. Thus, questionable how a single family handle the Php 12,030 per month.

Conclusion and Recommendation

The following are the conclusion and recommendation of the researchers:

For Philippine Government

 Philippine government should be clear and focus to the long-term resolution for the crisis.
 Contingency or emergency funds is necessary for future use.
Philippine Banking Sector
 Tailored fit services not just for high-net-worth clients for the regular Filipino.

Individuals
 Awareness about finances.
 Calibrating oneself to decline the financial illiteracy.

Source:

Manoj Singh. 2023. The 2007–2008 Financial Crisis in Review. Investopedia.

https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp

AMRO Communications Team. 2023. The Philippines: Managing a Robust Recovery amid High
Inflation and Structural Challenges. AMRO. https://amro-asia.org/the-philippines-managing-a-robust-
recovery-amid-high-inflation-and-structural-challenges/#:~:text=Economic%20developments%20and
%20outlook,Pongsaparn.

Ronald U. Mendoza. 2021. The Philippine economy under the pandemic: From Asian tiger to sick
man again?. Brookings. https://www.brookings.edu/articles/the-philippine-economy-under-the-
pandemic-from-asian-tiger-to-sick-man-again/#:~:text=The%20Philippines'%20economic%20growth
%20faltered,that%20year%20(Figure%201).

Banko Sentral ng Pilipinas. 2023. Philippine Economic Updates.

https://www.bsp.gov.ph/Pages/IRG/Philippine%20Economic%20Updates%20Vol%203-2023_August
%202023.pdf

Press and Public Affairs. House of Representative. 2023. Speaker Romualdez cites PBBM’s
achievements: Keep up the good work, Mr. President.
https://www.congress.gov.ph/press/details.php?pressid=12553#:~:text=For%20Speaker
%20Romualdez%2C%20the%20most,destination%2C%20and%20in%20foreign%20relations.

Jean-Claude Nascimento. 2021. 4 Crisis in the Financial Sector and the Authorities’ Reaction: The
Philippines. IMF eLibrary.
https://www.elibrary.imf.org/configurable/content/book$002f9781557751874$002fch04.xml?t:ac=book
%24002f9781557751874%24002fch04.xml
Fitch Ratings. 2023. Philippine Banks – Peer Review 2023.
https://www.fitchratings.com/research/banks/philippine-banks-peer-review-2023-14-05-2023

Kris Crismundo. 2023. BSP bridges financial literacy gap among Filipinos. Philippine News Agency.
https://www.pna.gov.ph/articles/1206091

CLAIRE DENNIS S. MAPA, Ph.D. 2022. Proportion of Poor Filipinos was Recorded at 18.1 Percent in
2021. Philippine Statistics Authority. https://psa.gov.ph/statistics/poverty/node/167972