In many newspapers, a leaked memo of J.P. Morgan is summarized with headlines like: “JPMorgan warns of growing risk to investing in Israel due to judicial shakeup plans” (Times of Israel) or “J.P. Morgan: Judicial reform could hit Israel’s credit rating” (GLOBES) or “JP Morgan: Israeli judicial reform will negatively impact economy” (Jerusalem Post)
Who is J.P. Morgan? Is it an entity on moral and legal high grounds? Is it a source to be taken as unchallenged granted? Well, let us take a look at recent history. Let us start with the year 2020.
J.P. Morgan Securities admitted manipulative trading according to an official release by the US-State authority SEC: “The Securities and Exchange Commission today announced charges against J.P. Morgan Securities LLC, a broker-dealer subsidiary of JPMorgan Chase & Co., for fraudulently engaging in manipulative trading of U.S. Treasury securities. J.P. Morgan Securities admitted the findings in the SEC’s order, and agreed to pay disgorgement of $10 million and a civil penalty of $25 million to settle the action.
The U.S. Department of Justice and the U.S. Commodity Futures Trading Commission today announced parallel actions against JPMorgan Chase & Co. and certain of its affiliates for engaging in manipulative trading in the precious metals and U.S. Treasuries futures and cash markets. A total of more than $920 million, including amounts for criminal restitution, forfeiture, disgorgement, penalties, and fines, is to be paid across the three actions. The DOJ entered into a three-year deferred prosecution agreement with JPMorgan Chase & Co., whereas the CFTC announced settlements with J.P. Morgan Chase & Co., JPMorgan Chase Bank, N.A., and JPMorgan Securities. ” (press release by SEC Sept. 29, 2020).
Well, someone can say, can happen, will never happen again. In the year the SEC published Dec., 17 2021 a press release with the headline: “JPMorgan Admits to Widespread Recordkeeping Failures and Agrees to Pay $125 Million Penalty to Resolve SEC Charges”.
And to make the row full, REUTERS wrote July 2022: “JPMorgan fined $850,000 for alleged swap reporting failures”. And 2022 “Bank of America, Citigroup, JPMorgan screen poorly in Fed’s 2022 stress test” One can reasonably say, J.P. Morgan isn’t really in the position to lecture Israel.
What does the Memo from J.P. Morgan Really Say?
But let us leave the question of credibility aside. Let us look into the document. Does J.P. Morgan really actually say what is summarized as headlines by some newspapers or is it grossly misleading, even wrong?
According to the leaked memo, the wording of J.P. Morgan is very cautious and very vague. J.P. Morgen wrote. On page 1 of the memo dated to the 2nd of February 2023, J.P. Morgan wrote: “First the judicial reforms can have (stress by VonNaftali) medium-term investment and growth implications that are hard to quantify. (stress by VonNaftali)”
No warning of growing risks, no “will negatively impact”, no hitting, and other scaremongering headlines of doom. Instead, judicial reform can have implications which hard to quantify. Not even the word ‘negative’ was used. Wow.
And on page 2 of the memo from J.P. Morgan we read the following lines under the headline “idiosyncratic risks”. In plain English according to Collins Dictionary: unusual. Well, what is said by that? Unusual risks That’s it. Not much and not uncommon for a region full of lunatic antisemitic terror organizations which seek to annihilate the State of Israel. ‘Unusual’ is the norm in the Middle East.
But let us take a closer look, at what J.P. Morgan qualifies as ‘unusual’: “The scale of economic/market impact is difficult to judge at this stage, but it can be medium-term negative“. Well, nothing is said. Difficult to judge. That’s it. On the same base, it could also be positive. But definitely, the quote does not support headlines as quoted above.
Let us continue. J.P. Morgen wrote: “We would expect only modest (stress by VonNaftali) reactions in Israel’s rates markets in such an event. Israel’s credit ratings stand comfortably (stress by VonNaftali) in the investment grade bucket across the three major ratings agencies.”
And finally, J.P. Morgan speaks of a “potential negative impact (of the Judicial reform; remark VonNaftali) on investment flows to Israel, (….), could be also a midterm-risk.”
Well, that’s nothing too. It’s a warning which I can address to any state of the world. Why? Because there are a lot of real risks outside there, like the war in Europa, an incompetent US-Government which does not worry about China balloons spying out on the USA, a global recession, or the institutional crisis of Germany – Berlin has to repeat the elections and is likely to fail to deliver a democratically flawless end result when the elections are repeated – and EU at large.
So, thank you for nothing. The case is closed. Israel has an exceptionally good base, ranked at place 4 of thriving economies by “The Economist” and VonNaftali proves day for day, that the markets trust Bibi. And yes, we have rough times on a global scale. Within these storms, Judicial reform is a fart of a fly in a hurricane. The reform is necessary and will strengthen both democracy and the economy in Israel. By the people, for the people.
What remains, the headlines are grossly overstated, someone may even say, they are wrong and lies.