U.K. bank shares fall after JPMorgan loss

The JP Morgan Chase building is seen March 24, 2008 in New York City
Chris Hondros/Getty Images

(AP) LONDON - Shares in major British banks fell Friday in the first day of trading after JPMorgan Chase (JPM) revealed a surprise loss of $2 billion in six weeks in trading on derivatives by its London operation.

Barclays, which has a large investment banking arm, was the biggest loser, shedding 2.5 percent at midday. Royal Bank of Scotland fell 1.6 percent, Lloyds Banking Group 1.5 percent and HSBC 1.3 percent.

Ian Gordon, analyst at Investec Securities, said the share movements may be based on a fear that Morgan's difficulty will lead to tougher regulations on banking.

"Based on the limited information available, it's attributed to egregious error within JPMorgan, so there is no reason to read across that specific loss to any other bank," Gordon said.

JPMorgan Chase acknowledges $2 billion trading loss
JPMorgan Chase: London whale swallows $2B

Jordan Lambert, a trader at Spreadex in London, said the market reaction was understandable.

"When such shocks occur, it is wise to err on the side of caution and consider whether it is a possible tip of the iceberg scenario, especially when one contemplates the interconnectedness of the banking system," he said.

JPMorgan Chase, the largest bank in the United States, said 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 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."

The Wall Street Journal reported that JPMorgan was in touch with Britain's financial regulator, the Financial Services Authority, about the trading loss, but neither the company nor the regulator would comment.

The Journal and Bloomberg News reported in April that other investors were reacting to massive positions taken by a London trader identified as Bruno Michel Iksil, who worked in the Morgan's risk management arm, the Chief Investment Office.

At the time, Dimon dismissed concerns as "a complete tempest in a teapot."

According to the register of the Financial Services Authority, Iksil joined JPMorgan Chase and J.P. Morgan Europe Ltd. on Nov. 1, 2007.

Deutsche Bank, Credit Suisse, Goldman Sachs and Bank of America are among more than 240 foreign banks which have offices in London, Europe's biggest financial center.

Swiss bank UBS last year reported losing $2 billion through unauthorized trades allegedly made by a junior employee in London.

London accounts for 46 percent of the over-the-counter derivatives market, 70 percent of eurobond turnover and 19 percent of global hedge fund assets, according to the City of London, which governs the financial district.

The banking crisis which began in 2008 has caused British authorities to reconsider the previous emphasis on "light touch" regulation. On Wednesday, the government announced that it would be legislating new regulations in the current session of Parliament, including forcing banks to insulate their retail operations from riskier investment banking.