JPMorgan Chase acknowledges $2 billion trading loss
Updated 8:34 PM ET
(CBS/AP) JPMorgan Chase (JPM), the largest bank in the United States, said Thursday that it lost $2 billion in the past six weeks in a trading portfolio designed to hedge against risks the company takes with its own money.
The company's stock plunged almost 7 percent in after-hours trading after the loss was announced. Other bank stocks, including Citigroup and Bank of America, suffered heavy losses as well.
The trading loss is an embarrassment for a bank that came through the 2008 financial crisis in much better health than its peers. It kept clear of risky investments that hurt many other banks.
"The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought," CEO Jamie Dimon told reporters. "There were many errors, sloppiness and bad judgment."
Dimon was asked whether other banks could be in trouble.
"On that conference call Dimon was asked that very question point blank. He said not that he's aware of. In his words, just because we were stupid doesn't mean anyone else was," said CBS News correspondent Anthony Mason.
The exotic financial investments got the world in trouble in 2008. Mason notes that's the question a lot of people are asking now, did JPMorgan Chase learn nothing?
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"The scary part of this is people thought that Chase was the best-run bank, maybe, on Wall Street," said Mason.
The loss came in a portfolio of the complex financial instruments known as derivatives, and in a division of JPMorgan designed to help control its exposure to risk in the financial markets and invest excess money in its corporate treasury.
Bloomberg News reported in April that a single JPMorgan trader in London, known in the bond market as "the London whale," was making such large trades that he was moving prices in the $10 trillion market.
Dimon said the losses were "somewhat related" to that story, but seemed to suggest that the problem was broader. Dimon also said the company had "acted too defensively," and should have looked into the division more closely.
The Wall Street Journal reported last month that JPMorgan had invested heavily in an index of credit-default swaps, insurance-like products that protect against default by bond issuers.
Hedge funds were betting that the index would lose value, forcing JPMorgan to sell investments at a loss. The losses came in part because financial markets have been far more volatile since the end of March.
Partly because of the $2 billion trading loss, JPMorgan said it expects a loss of $800 million this quarter for a segment of its business known as corporate and private equity. It had planned on a profit for the segment of $200 million.
The loss is expected to hurt JPMorgan's overall earnings for the second quarter, which ends June 30. Dimon apologized for the losses, which he said occurred since the first quarter, which ended March 31.
"We will admit it, we will learn from it, we will fix it, and we will move on," he said. Dimon spoke in a hastily scheduled conference call with stock analysts. Reporters were allowed to listen.
Independent banking consultant Bert Ely said $2 billion is a big loss, but it won't bring down the bank.
"JPMorgan Chase is big enough, it has enough capital and earning power that it will be able to absorb this loss," he said.
Ely said this loss undercuts the industry's complaints about too much regulation.
"From time to time there are going to be blunders like this," he said. "The objective of public policy is to make sure those losses stay in the private sector and don't destabilize the financial system."
Among other bank stocks, Citigroup was down 3.3 percent in after-hours trading, Bank of America was down 2.9 percent, Morgan Stanley was down 2.4 percent, and Goldman Sachs was down 2.2 percent.
JPMorgan is trying to unload the portfolio in question in a "responsible" manner, Dimon said, to minimize the cost to its shareholders. Analysts said more losses were possible depending on market conditions.
Dimon said the type of trading that led to the $2 billion loss would not be banned by the so-called Volcker rule, which takes effect this summer and will ban certain types of trading by banks with their own money.
The Federal Reserve said last month that it would begin enforcing that rule in July 2014.
Some analysts were skeptical that the investments were designed to protect against JPMorgan's own losses. They said the bank appeared to have been betting for its own benefit, a practice known as "proprietary trading."
Bank executives, including Dimon, have argued for weaker rules and broader exemptions.
JPMorgan has been a strong critic of several provisions that would have made this loss less likely, said Michael Greenberger, former enforcement director of the Commodity Futures Trading Commission, which regulates many types of derivatives.
"These instruments are not regularly and efficiently priced, and a company can wake up one day, as AIG did in 2008, and find out they're in a terrific hole. It can just blow up overnight," said Greenberger, a professor at the University of Maryland.
The disclosure quickly led to intensified calls for a heavier-handed approach by regulators to monitoring banks' trading activity.
"The enormous loss JP Morgan announced today is just the latest evidence that what banks call `hedges' are often risky bets that so-called `too big to fail' banks have no business making," said Sen. Carl Levin, D-Mich.
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If the neo(fake)cons really think in todays world honor overtrumps greed in the banking and corporate world they are deluding themselves.
Probably need to force them to have honor. With regulations...
http://www.simplyhired.co.in/a/jobs/list/q-J+P+morgan
SAME MORE LIKE IT. JP Morgan took a tax-payer bailout, and
bought out CHASE, hence the name JP MORGAN CHASE, and what did
they do with the money, gamble on more DERIVATIVES.
WHERE IS ERIC HOLDER TO INDICT THEM?
CLOONEY YOU IDIOT, DID YOU NOT LEARN ANYTHING FROM YOUR FATHER?
YOU HELPED RAISE 12-15 MILLION FOR THIS IDIOT OBAMA-RAMA FOR HIS
RE-ELECTION. FOR WHAT? MORE QE3, MORE MONEY PRINTING, SO WE CAN
HAVE MORE INFLATION, SO THEY DESTROY THE DOLLAR AND RIP US ALL
OFF. EVERYONE AND EVERY COUNTRY (CHINA, JAPAN, SAUDI ARABIA)
THAT OWNS A T-BILL WILL BE WIPED OUT FROM THESE Derivative
games.
Plus, now they are gambling shorting the Dollar, and Silver and
Gold commodities. JP MORGAN CHASE STOLE THE MONEY THAT WAS
MISSING FROM MF GLOBAL, WHERE'S THE INDICTMENT. WHY ISN'T JOHN
CORZINE IN JAIL? WHY IS BLYTHE MASTERS NOT IN JAIL, WHO HELPS
THE FEDERAL RESERVE DO HFT High Frequency Trading on the
COMEX/NYMEX, NOT IN JAIL.
Where did all the physical metal that was Registered & Elibable,
1.4 million ounces disappeared from the vaults of MF Global,
only to show up in Registred JP Morgan accounts the next day.
They found a new way to gamble with tax-payer bailout.
Where is that other idiot, Gensler Chairman of the CFTC?
Bring back Brooskley Born, the previous Chair person of the
CFTC, she had INTEGRITY, NOT like THESE IDIOTS!!!
This Obama-Rama IDIOT PROMISED REGULATION 4 years ago of the
Banks and the Derivatives, and STILL NO REGULATIONS TO TODAY.
"MORAL HAZARD", TIMOTHY GEITHNER SHOULD BE FIRED, AND GENSLER
AND BEN BERNANKE. JP MORGAN CHASE IS ONE OF THE BANKS THAT MAKES
UP THE FEDERAL RESERVE PRIVATE BANKING CABAL. FIRE THEM ALL AND
INDICT THEM FOR GRAND FRAUD AND MISMANAGEMENT.
So who will bring change, with specifics and notarized so the one you believe in can be held accountable?
tiredofeverything -
hehe
Makes you wonder why we're all said to invest for retirement... in a system that also happens to say "Don't invest what you can't afford to lose"...
As for the firm, the day they took US-funded corporate subsidy is the day they surrendered "free market" beliefs, even if they still espouse them. And even if they did show the balance sheets, people would still expect corruption (why else is accounting made so needlessly convoluted in the first place?)
And these companies make money from loaning it at x% interest rates. Thank wages stagnating or dropping that, in turn, requires people to borrow in the first place...
"JPMorgan Chase is big enough, it has enough capital and earning power that it will be able to absorb this loss," he said.
Ely said this loss undercuts the industry's complaints about too much regulation.
Obviously, there is too little regulation and too much greed!
They'll probably just shift the cost onto customers or employees...