JPMorgan tarred as shares plunge on $2bn loss

JPMorgan Chase's shares were pummeled Friday and politicians blasted its CEO Jamie Dimon after the bank reported a shock $2 billion derivatives loss that even the pugnacious chief executive called "egregious."

The huge New York-based bank sent shivers through the markets with the loss, after having convinced many that a well-managed bank could manage the risks of complex derivatives that lay behind the 2008 financial crisis.

Politicians called for tightening bank regulation and tough controls on hedging activities, and a Republican senator requested a hearing into the case.

"Are we confident that taxpayers are fully protected from losses at major financial institutions?" asked Senator Bob Corker in a letter to the Senate Banking Committee head.

Dimon revealed the losses late Thursday in an unscheduled call to analysts, saying they were incurred in the last six weeks by the New York bank's risk management unit, the Chief Investment Office.

They involved trading in credit default swaps usually meant to offset other risks in the bank's investments, but Dimon said the strategy "morphed" into trading that was overly complex, poorly executed and badly overseen.

"These were egregious mistakes," Dimon said. "They were self-inflicted and... this is not how we want to run a business."

Although he said the bank was still very profitable, Dimon also acknowledged the positions could possibly lead to another $1 billion in trading losses by the end of this quarter.

"Hopefully by the end of the year... this won't be a significant item for us," he said.

Investors made their displeasure brazenly apparent, savaging the bank's shares from the start of Friday's trading.

The firm's stock closed down 9.3 percent at $36.96, wiping around $14 billion off the market value of the country's largest bank.

There was little new information about what happened at the bank. Attention focused on the role of a London-based JPMorgan trader, French-born Bruno Michel Iksil, nicknamed "The London Whale" and "Voldemort," after the villain in the Harry Potter books.

A source close to the matter told AFP that the loss was "related, but not exclusively" attributable to Iksil's activities, which had been reported out of London in April by The Wall Street Journal.

"Everyone is talking about this, because once again it shows the power that a handful of people can have on the market," a London trader said.

But others said such a large loss could not have occurred without the knowledge of Iksil's superiors.

"A trading loss can happen -- the problem is that chief executive Jamie Dimon and his bank are considered the best risk manager," said Gregori Volokhine, a financial strategist at Meeschaert.

"It's worrying that this wasn't an accident: the breakdown came in the surveillance system... the mistake goes high up."

Erik Oja, a banking analyst at Standard & Poor's, condemned the "major embarrassment for the bank" after it survived the 2008 financial crisis relatively unscathed.

"This looks like exotic hedging that went the wrong way. Instead of lowering volatility, it made it worse," he said.

JPMorgan was also hit with a downgrade by the rating agency Fitch, and S&P cut its outlook to "negative." US media said the Securities and Exchange Commission was investigating what happened at the bank.

But quickly, the focus turned to whether regulators need to tighten controls on banks' complex risk-hedging activities and actively trading their own funds.

Dimon has led US banks in fighting the application of the new Volcker Rule, which would ban such proprietary trade. Banks also do not want to see curbs on their hedging activities.

JPMorgan's loss was "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 Senator Carl Levin, a Democrat.

"We were forced not too long ago to bail out banks which had made these kind of risky bets. We never want to do that again."

Others questioned whether the largest banks could be adequately supervised at all.

"When you have the supposedly best-managed bank of the country making a mistake of this magnitude, it raises the question if anybody is able to manage a bank of this size," said Rochdale Securities banking analyst Dick Bove.

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • Aquino: Philippines to fly usual routes over disputed reefs

    MANILA, Philippines (AP) — Philippine aircraft will continue to fly their usual routes over disputed reefs in the South China Sea, the country's president said Monday, defying China's challenges to its planes and those of the United States. …

  • Philippines to fly over disputed South China Sea: Aquino
    Philippines to fly over disputed South China Sea: Aquino

    Philippine military and commercial aircraft will keep flying over disputed areas in the South China Sea despite Chinese warnings over the airspace, President Benigno Aquino said on Monday. "We will still fly the routes that we fly based on the international law from the various conventions we entered into," Aquino told reporters when asked whether the Philippines accepted China's position. The Chinese military last week ordered a US Navy P-8 Poseidon surveillance plane away from airspace …

  • Mitsubishi reaches out to far-flung Batad community
    Mitsubishi reaches out to far-flung Batad community

    A “Dadbod” is a newly coined term now trending in media. It was introduced to the world by Clemson University sophomore Mackenzie Pearson as she refers to any man—father or bachelor—with a physique that’s a “nice balance between a beer gut and working out.” “It’s more human, natural, and attractive,” she adds. For this writer, […] The post Mitsubishi reaches out to far-flung Batad community appeared first on Carmudi Philippines. …

  • A weekend of premium cars
    A weekend of premium cars

    Good news to all luxury car fanatics as PGA Cars, the exclusive importer and distributor of Audi, Porsche, Lamborghini and Bentley cars in the country, will be holding the PGA Cars Premium Festival from May 29 to May 31 at the PGA Center in Global City in Taguig. The 3-day event will showcase PGA’s latest […] The post A weekend of premium cars appeared first on Carmudi Philippines. …

  • APEC ministers to endorse Boracay Action Agenda
    APEC ministers to endorse Boracay Action Agenda

    Trade ministers at the Asia-Pacific Economic Cooperation (APEC) meeting in Boracay, Aklan agreed yesterday to endorse the proposed Boracay Action Agenda to the member countries’ leaders, presenting opportunities for global trade for micro, small and medium enterprises (MSMEs). In a press conference following the conclusion of the APEC Ministers Responsible for Trade Meeting, Trade Secretary Gregory Domingo, who also served as chairman, said ministers agreed to recommend the adoption of the …

  • Talks with China over sea row urged
    Talks with China over sea row urged

    The Philippines should engage China in bilateral talks in its efforts to maintain peace and order at the disputed West Philippine Sea, Sen. Francis Escudero said yesterday. Escudero supports the government’s move to bring the issue before international arbitration but also stressed the need for the Philippines to pursue talks with China. Escudero made the statement after UN Secretary General Ban Ki-moon on Friday called for a peaceful solution to territorial disputes in the South China Sea. …

  • House panel tackles bill on regular disaster drills
    House panel tackles bill on regular disaster drills

    The House committee on national defense is deliberating on a measure mandating the regular conduct of disaster risk reduction drills in educational institutions nationwide. Authored by Camarines Sur Rep. Rolando Andaya Jr., the bill mandates that risk reduction drills be held annually in all educational institutions throughout the country in coordination with the schools’ respective local government units. “The Philippines’ location along the Pacific Ring of Fire and close to the equator …

  • PCSO running out of funds
    PCSO running out of funds

    Philippine Charity Sweepstakes Office (PCSO) chairman Ireneo Maliksi has admitted that the revenue-generating agency is running out of funds as it continues with its mandate to provide financial assistance to indigent Filipinos. Aside from providing financial help to individual recipients, Maliksi cited at least 13 laws that mandates the PCSO to provide mandatory contribution to different government agencies. Just last week, PCSO released P100 million to the Commission on Higher Education as …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options