JP Morgan reveals market loss caused by hedging strategy failure

Chief executive Jamie Dimon issues apology to stock analysts over company’s ’embarrassing’ errors

JP Morgan has revealed that it has taken an unexpected market loss in a trading book after a hedging strategy failed.

Since the end of March, the company’s Chief Investment Office “has had significant mark-to-market losses in its synthetic credit portfolio”, the company said in a filing late on Thursday.

Chief executive Jamie Dimon called the mistakes “egregious” and apologised to stock analysts on a conference call that the company suddenly scheduled after making the disclosure in a quarterly filing to the US Securities and Exchange Commission.

Dimon acknowledged that the errors are especially embarrassing in light of his public criticism of the so-called Volcker rule to ban proprietary trading by big banks.

“It plays right into the hands of a bunch of pundits out there, but that is life,” Dimon said. He said he still believes in his arguments against the Volcker rule. The problem at JP Morgan, he said, was with the execution of the hedging strategy.

The strategy “morphed over time” and it was “ineffective, poorly monitored, poorly constructed and all of that”, Dimon said.

“This violated our principles. This trading violates the Dimon principle.”

The Chief Investment Office is an arm of the bank that JPMorgan has said is used to make broad bets to hedge its portfolios of individual holdings, such as loans to speculative-grade companies.

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