The US Securities and Exchange Commission’s investigation into JP Morgan Chase’s hiring practices in Asia took a more serious turn with a Bloomberg News report that the bank kept a spreadsheet of well-connected hires from prominent families, linked to specific deals the bank was pursuing.
As Quartz has reported, US regulators investigating the bank for violation of the Foreign Corrupt Practices Act will be looking for specific evidence that links JP Morgan’s hires with specific deals it was pursuing—like, say, a spreadsheet that lays out those connections in detail. While Bloomberg doesn’t specify, the spreadsheet is almost certainly created in Excel, a program that financial firms rely on so constantly that even when they’re not at work, bankers can’t stop using it (like this guy, who created a spreadsheet for women he was dating and had “in the pipeline”).
At this point, JP Morgan’s legal compliance and top executives, as well as a slew of government officials and executives around the world, may wish they’d never heard of Excel. It has been linked to a series of missteps and blowups, including:
The “London Whale” trade
Due to an error in an Excel spreadsheet used to model risk, JP Morgan seriously underestimated the downside of its synthetic credit portfolio, which ultimately led to the bank to declare $6 billion in losses and could lead to another $600 million in fines. As James Kwak explains on Baseline Scenario, the errors stemmed from a combination of copy-paste mistakes and a faulty equation created to crunch the numbers.
Europe’s painful and possibly needless austerity
Excel errors helped to push serious budget cuts that have roiled Europe and devastated social services there. As IEEE.org explains:
Back in 2009, Carmen M. Reinhart and Kenneth S. Rogoff published a book with the provocative title, “This Time It’s Different.” The professors asserted in their book that, among other things, their empirical research demonstrated that when advanced economies’ public liabilities reach or exceed “the important marker of 90 percent of GDP,” long-term economic growth and stability are placed at peril.
Governments, and particularly European governments, went on to use Reinhart and Rogoff’s book to justify their embrace of austerity. But a University of Mass review of their book and the research it was based on found “coding errors, selective exclusion of available data, and unconventional weighting of summary statistics,” linked in part to Excel errors.
As BreakingViews pointed out earlier this year, Microsoft Office, and particularly Excel, might be the “quiet villain of global finance,” given its programs implicated in some of the worst financial problems the world has experienced in recent years, including errors at Moody’s Investors Services that gave complicated debt instruments AAA ratings and the “elegant graphics of Power Point” which have validated some of the “wackiest results from spreadsheets and the kookiest strategies” by chief executives and investment bankers.
Creating a spreadsheet tying your new princeling hires to the deals you want to win must have seemed like a great idea to someone in JP Morgan’s investment banking division at one point. But the bank’s top executives must be wishing their underlings had never clicked on that iconic green X icon.