Morgan's clients bet big in Korea, chasing double-digit returns with what looked like little risk. Analysts view the New York bank as a prime takeover target. Its profit fell 34 percent last year to $963 million, the worst result since 1989. Morgan's bottom line is already smarting from other trading losses. in 1996 in a landmark derivatives dispute with one of its clients, Procter & Gamble Co. The potential damage dwarfs the $165 million hit taken by Bankers Trust Corp. That amount represents the money still due after two Korean banks paid up on part of the losses. The New York bank has set aside $500 million to cover any liability from the soured trades. 'You bet when you're making money,' Song said, 'never when you're losing money.'Ī year later, Morgan is still trying to contain the damage from its misadventures in Korea.

'I don't think restructuring would work,' said Song in a conversation that was tape-recorded by J.P. Speaking Korean, Song pleaded with his colleague not to let the clients try to trade their way out of trouble. 4, 1998, Bang listened as Song Jae Ho, another Morgan vice president, urged him to shut down the investments.

Would it be Morgan, which had brokered the transactions and offered its clients the prospect of a 30 percent return? Or would it be the Korean firms, which had invested the money and taken the risks?

bank in terms of assets, would be on the hook for an amount equal to half of the $1.465 billion it earned in 1997.Īt issue then - as it still is today - was who should bear responsibility for a series of derivatives trades that had gone wrong. If the Korean firms didn't pay - and it didn't look like they would - then Morgan, the fourth-largest U.S. Bang Choon Ho, a Morgan vice president, had flown to the South Korean capital from Hong Kong to persuade eight financial companies to swallow a $757 million trading loss. executive answered the telephone in Room 1808 of the Hotel Shilla in Seoul. Just over a year ago, on the first Sunday of 1998, a J.P. Morgan Got Tangled in a $500 Million Derivatives Debacle

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