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JP Morgan Reveals $2 Billion Loses By 'Sloppiness', 'Many Errors', 'Bad Judgment
2012-05-10 20:26:26 (119 weeks ago)
Posted By: Intellpuke
JP Morgan Chase, America's biggest bank, issued a surprise trading update after U.S. markets had shut on Thursday, admitting it had incurred $2 billion (£1.2 billion) of trading losses in the past six weeks.

Jamie Dimon, chief executive of the bank which was praised for its handling of the 2008 banking crisis, cited "sloppiness" "bad judgment" and "many errors".

During a hastily arranged conference call, he described the mistakes as "egregious". The bank expects to take an additional $1 billion in losses in the second quarter and said the losses occurred in its chief investment office, a part of the bank intended to manage risks. The trading position causing the losses involved credit default swaps, which insure against losses when companies or governments collapse.

In after-hours trading, JP Morgan Chase shares fell almost 7% and dragged other banks such as Citigroup and Bank of America lower.

Dimon said: "The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought. There were many errors, sloppiness and bad judgment."

(story continues below)




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 loss came in a portfolio of the complex financial instruments known as derivatives, and in a division of JP Morgan designed to help control its exposure to risk in the financial markets and invest excess money in its corporate treasury.

Bloomberg reported in April that a single JP Morgan 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 expected 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 on 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.

Among other bank stocks, Citigroup was down 3.3% in after-hours trading, Bank of America was down 2.9%, Morgan Stanley was down 2.4%, and Goldman Sachs was down 2.2%.

Intellpuke: You can read this article by Guardian City Editor Jill Treanor, reporting from London, England, with reporting by various news agencies, in context here: www.guardian.co.uk/business/2012/may/10/jp-morgan-market-loss-hedging

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