$2bn hedging loss leaves JPMorgan with ‘egg on our face’

JPMorgan Chase & Co, the biggest US bank by assets, says it has suffered a trading loss of at least $2bn (€1.53bn) from a failed hedging strategy, a shock disclosure that hit financial stocks and the reputation of the bank and its chief executive Jamie Dimon.

For a bank viewed as a strong risk manager that went through the financial crisis without reporting a loss, the errors are embarrassing, especially given Dimon’s public criticism of the so-called Volcker rule to ban proprietary trading by big banks.

“This puts egg on our face,” Dimon said, apologising on a hastily called conference call with stock analysts. He conceded the losses were linked to a Wall Street Journal report last month about a trader, nicknamed the London Whale, who, the report said, amassed an outsized position which hedge funds bet against.

JPMorgan said in a filing with the Securities and Exchange Commission that since the end of March, its chief investment office has had significant mark-to-market losses in its synthetic credit portfolio, a product that typically includes derivatives in a way intended to mimic the performance of securities.

While other gains partially offset the trading loss, the bank estimates the business unit with the portfolio will post a loss of $800 in this quarter, excluding private equity results and litigation expenses. The bank previously forecast the unit would make a profit of about $200m.

“It could cost us as much as $1bn or more,” in addition to the loss estimated so far, Dimon said. “It is risky and it will be for a couple quarters.”

The dollar loss, though, could be less significant than the hit to Dimon and the reputation of a bank which was strong enough to take over investment bank Bear Stearns and consumer bank Washington Mutual when they collapsed in 2008. JPMorgan had $2.32tn of assets supported by $190bn of shareholder equity at the end of March — an equity ratio of almost 13%, four times the industry mean and ahead of 10%-11% at Citigroup and Bank of America Corp — and has been earning more than $4bn each quarter, on average, for the past two years.

“Jamie has always styled himself as one of the kings of Wall Street,” said Nancy Bush, a longtime bank analyst and contributing editor at SNL Financial. “I don’t know how this went so bad so quickly with his knowledge and aversion to risk.”

— Reuters

More in this section

Budget 2022 Logo

What impact will this  year's budget have on you and your business.

IE logo


The Business Hub

News and analysis on business, money and jobs from Munster and beyond by our expert team of business writers.

Sign up
Puzzles logo

Puzzles hub

Visit our brain gym where you will find simple and cryptic crosswords, sudoku puzzles and much more. Updated at midnight every day. PS ... We would love to hear your feedback on the section right HERE.

News Wrap

A lunchtime summary of content highlights on the Irish Examiner website. Delivered at 1pm each day.

Sign up

Some of the best bits from irishexaminer.com direct to your inbox every Monday.

Sign up