JP Morgan chief reveals $2bn trading loss caused by ‘sloppiness’
Chief executive Jamie Dimon issues apology to stock analysts over company’s ‘embarrassing’ errors and ‘bad judgment’
JP Morgan Chase, America’s biggest bank, issued a surprise trading update after US markets had shut on Thursday, admitting it had incurred $2bn (£1.2bn) 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 $1bn 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.”
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 $10tn 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 $2bn trading loss, JPMorgan said it expected a loss of $800m this quarter for a segment of its business known as corporate and private equity. It had planned on a profit for the segment of $200m.
The loss is expected to hurt JPMorgan’s overall earnings for the second quarter, which ends on 30 June. Dimon apologised for the losses, which he said occurred since the first quarter, which ended 31 March.
“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%.