JPMorgan faces new scrutiny after $2bn loss

One of the pillars of Wall Street -- bank JPMorgan Chase -- faces new scrutiny Saturday after it reported a shocking $2 billion derivatives loss that even its pugnacious chief executive called "egregious."

"It ought to be a concern to the SEC. They are the ones who ought to have a concern about that," said Senator Carl Levin, referring to the Securities and Exchange Commission, the government's top financial regulator.

"The SEC should surely take a look at it." added the Democratic lawmaker, who heads the Senate's Permanent Subcommittee on Investigations.

According to The New York Times, the SEC was already on the case.

The inquiry, which is being run out of New York, will probably examine the bank's past regulatory filings about the internal unit that placed the trades, as well as recent statements from the firm's top executives, the paper said, citing unnamed people "briefed on the matter."

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.

JPMorgan CEO Jamie 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.

The Wall Street Journal, citing people familiar with the situation, reported Saturday that JPMorgan told traders several months ago to make bets aimed at shielding the bank from the market fallout of Europe's deepening crisis.

But instead of shrinking the risk, their complicated bets backfired into losses of as much as $200 million a day in late April and early May, the paper pointed out.

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.

JPMorgan was also hit with a downgrade by the rating agency Fitch, and S&P cut its outlook to "negative."

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.

Rick Gorka, spokesman for likely Republican presidential candidate Mitt Romney, said the loss "demonstrates the importance of oversight and transparency in the derivatives market.

If elected, he said, Romney "will push for common-sense regulation that gives regulators tools to do their jobs, and that gives investors more clarity."

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.

  • U.N. chief appeals to Indonesia not to carry out executions
    U.N. chief appeals to Indonesia not to carry out executions

    United Nations Secretary-General Ban Ki-moon appealed to Indonesia on Saturday not to execute 10 prisoners, including two Australians, for drug-related crimes. Indonesia has so far informed seven of the 10 death row inmates, including the Australians and one Nigerian, that they will be executed in a matter of days, possibly as soon as Tuesday. Nationals from Brazil, Ghana and the Philippines are also on Indonesia's death row. A temporary reprieve was granted to a French citizen who will not …

  • Indonesia defiant as UN leads condemnation of looming executions
    Indonesia defiant as UN leads condemnation of looming executions

    Indonesia on Sunday signalled it was determined to push ahead with the execution of eight foreign drug convicts, despite a growing wave of global condemnation led by United Nations chief Ban Ki-moon. Authorities on Saturday gave formal notice to the eight -- from Australia, Brazil, Nigeria and the Philippines -- that they would be executed by firing squad imminently, along with an Indonesian prisoner. The group have been moved to the high-security prison island of Nusakambangan, where …

  • AFP monitoring deployment of Chinese seaplanes in Spratlys
    AFP monitoring deployment of Chinese seaplanes in Spratlys

    The Armed Forces of the Philippines (AFP) is adopting a wait and see approach amid reports that China will soon deploy seaplanes to further strengthen its maritime claims in the disputed Spratlys. Brig. Gen. Joselito Kakilala, spokesman for the military and commander of the AFP Civil Relations Service, said they have yet to ascertain the real purpose behind China’s continuing aggressive moves in the region. “We will wait and see before coming up with an official stand,” Kakilala said when …

  • US eyes access to Phl bases in 8 locations
    US eyes access to Phl bases in 8 locations

    The United States has asked for access to Philippine military bases in eight locations to rotate troops, aircraft and ships as Washington shifts its forces to Asia and as China expands its military presence in the South China Sea. US Defense Secretary Ash Carter, in a speech in Arizona, has outlined Washington’s next phase in its Asia “pivot,” deploying its most sophisticated destroyers, bombers and fighters to the region. The Asia “pivot” has already seen US Marines rotating through the …

  • Washington bucks China’s aggressive actions
    Washington bucks China’s aggressive actions

    Short of condemning China’s aggressive actions in the West Philippine Sea, a senior US military official said Washington does not support any act of coercion and bullying. “We don’t stand for coercion, bullying and aggressiveness,” said Brig. Gen. Christopher Mahoney, assistant US military director for  Phl-US Joint Balikatan Exercises 2015. At the sidelines of this year’s joint military exercises’ static aircraft display held at Clark Air Base in Pampanga, Mahoney told a media briefing that …

  • ‘Giving Bangsamoro police control is constitutional’
    ‘Giving Bangsamoro police control is constitutional’

    The proposed grant to the chief minister of the envisioned Bangsamoro region of operational control over police forces in the area is consistent with the Constitution, a senior administration lawmaker said yesterday. It is clear in the proposed BBL that the Bangsamoro police will be part of the Philippine National Police (PNP), while the Bangsamoro Regional Police Board (BRPB) will be part of the National Police Commission (Napolcom) and will carry out Napolcom’s mandate in the region,” he …

  • Noy off to KL for Asean meet
    Noy off to KL for Asean meet

    President Aquino will arrive here this afternoon with Manila hopeful of support from the Association of Southeast Asian Nations (ASEAN) to achieve peace and stability in the West Philippine Sea (South China Sea) as well as economic prosperity and inclusive growth among the people in the region. Philippine Ambassador to Malaysia Jose Eduardo Malaya III said that with respect to the dramatic developments in the South China Sea, Malaysian Foreign Minister Anifah Aman had called for the early …

  • Madrid Fusion Manila reignites Pinoy appetite for great food
    Madrid Fusion Manila reignites Pinoy appetite for great food

    After months of preparation and hard work from both the government and private sectors, the future of food is finally here in the country’s capital. Madrid Fusión Manila opened its doors on Friday to an international delegation who eagerly awaited the discussions of some of the most renowned and revered names in the culinary world. Madrid Fusión Manila is a historic gastronomic event marked by talks and exhibitions that showcases Spain and the Philippines’ shared cultural heritage, as well as …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options