JPMorgan loses $2 billion
Banking giant admits ‘errors, sloppiness’ with hedge portfolio
JPMorgan Chase, 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 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 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.
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.
“We will admit it, we will learn from it, we will fix it, and we will move on,” Dimon said in a conference call with stock analysts.
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.
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