What JP Morgan’s Opening Office In Nairobi Means For Kenyan Market

JP Morgan’s entry into Kenya’s market has raised eyebrows due to its controversial past and scandals. JP Morgan, the largest bank in the United States by assets and one of the biggest financial giants globally, has a history of fraud and unethical practices that may affect Kenyan investors.

In recent years, JP Morgan has been involved in several corruption cases which have cost it billions in fines. These include a $13 billion settlement for illegally packaging and selling mortgage-backed securities which caused losses for investors; a $2 billion settlement for covering up fraud relating to Bernie Madoff; a $920 million payment related to interest rate rigging; and most recently, an investigation over suspicions of foreign exchange rate manipulation.

The first big scandal to hit JP Morgan Chase was when the firm was accused of mis-selling mortgage-backed securities. During a slump in the housing market some financial institutions sold packages of mortgages to people who had no real understanding of how mortgages work or what kind of risks are involved in investing in them. This egregious behaviour sent shockwaves through markets and put millions at risk of losing money or even their homes as these so-called ‘securities’ defaulted en masse. As a result, many investors suffered significant losses while JPMCC escaped without any penalties or fines whatsoever. 

Another scandal came to light when JPMorgan was named one of six banks that agreed to pay out billions in settlements over alleged manipulation in international foreign exchange trading markets. This scandal demonstrated the power these big banks have over fixed income markets worldwide and countless traders saw their savings disappear at their own hands because they could not compete with the resources available to these powerful organisations. 

Finally, there is also the LIBOR rigging scandal that JP Morgan Chase was implicated in back in 2013. Despite being one of five major banks facing civil charges for manipulating interest rates contained within LIBOR (London Inter-Bank Offered Rate), JP Morgan were singled out by its peers for being particularly bad offenders engaging in “particularly egregious” activity during 2008/2009 financial crisis that lead up to heavy investor losses but so far, no criminal investigation against it despite clear evidence violations took place then.

Such scandals demonstrate the lack of ethical conduct by JP Morgan and raise doubts among potential Kenyan investors as to whether they can trust such an entity with their hard earned money.

Now faced with these challenges, the bank is preparing to move into Kenya’s market which presents its own set of risks due share many characteristics from all three scandals mentioned above – Excessive Risk Taking: Forex manipulation involves taking on leverage at extreme levels which can be devastating if bets go awry; Mis selling: With regards mortgage backed securities many buyers did not understand what they were buying as sellers such as JPMorgan failed to provide adequate information; Finally Regulatory arbitrage: Traders moved too fast creating regulatory loopholes or put trades through other financial products thus avoiding regulators scrutiny and become incompatible with rules regulating those markets triggering huge investor losses worldwide while none going after perpetrators either criminal nor civil basis since time immemorial yet again.

Additionally, JP Morgan serves as custodian bank for some government bonds backed by International Financial Corporation (IFC), thus making them responsible for assuring corporate governance standards within these projects. With JP Morgan’s questionable history, it introduces further risk if IFC’s own investment criteria are not fully implemented or enforced in Kenya or any other country where IFC invests.

The situation worsens when placed in the context of perceptions about Big Banks among Kenyans – that is negative. According to a 2014 Finscope survey on financial inclusion in Kenya, 33% of Kenyans surveyed indicated negative attitudes towards big banks or financial institutions compared with 42% positive attitudes. To counter this perception (among other initiatives) JP Morgan has launched various community initiatives and education programs targeting young people from underprivileged areas who lack access to quality education because of their financial status but could benefit from learning about banking principles at an early stage and develop into sustainable bank customers. 

For now, it remains too early to tell what effect JPMorgan investments will have on Kenya’s economy especially with regards to trust between foreign investors and local entrepreneurs/businesses as well as with respect to protection & security of Kenyans’ finances held with JPMorgan-affiliated products & services. Nevertheless, African governments must ensure that everyone playing by the rules- especially major players such as Jp Morgan- are doing so with full disclosure and transparency while providing public accountability & consumer protections throughout Africa’s markets including Kenya’s.