Thursday, June 28, 2012

JPMorgan Slips on Report Trading Loss Widened to $9 Billion

JPMorgan Chase & Co. (JPM) fell more than 6 percent in European trading after the New York Times (NYT) reported the lender’s trading losses from credit derivatives may total as much as $9 billion, exceeding the firm’s initial estimate.
The shares fell to $34.50 as of 1 p.m. in Frankfurt trading from their $36.78 close in New York yesterday.

JPMorgan Chief Executive Officer Jamie Dimon said on May 10 the bank lost more than $2 billion on bets in credit markets taken by its chief investment office in London and that the loss could increase by as much as $1 billion this quarter. Dimon, 56, has said JPMorgan is in no rush to unwind the trades, even if adverse market moves produce bigger losses in the short term.

The firm’s losses have increased in recent weeks as JPMorgan sought to exit its holdings, the New York Times reported today, citing unidentified former traders and executives at the bank. The company has already closed out more than half of its positions, the newspaper said.

“We are now in the realms of speculation in terms of the sheer scale,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA, who has a ‘neutral’ recommendation on JPMorgan. “The final loss will be offset by a number of items including a debt-valuation adjustment gain and gains on the sale of some of their treasury securities. However, the larger the number, the more difficult it is to reduce the impact.”

Dimon told lawmakers this month the company would be “solidly profitable” when it reports second-quarter earnings on July 13. Although the trading loss had grown to $2 billion for the quarter when the company disclosed it in May, the net loss for the CIO division at that time was $800 million. Dimon said the bank had $8 billion in gains in another trading portfolio within the CIO and had used $1 billion of that to offset the loss on the credit derivatives portfolio in London.
Patrick Burton, a spokesman for JPMorgan in London declined to comment on the New York times story.

 Asad Khan
Financial Analyst  (CFB)