JPMorgan posts $2B loss in 6 weeks in risk-cut effort
5/11/2012NEW YORK -- JPMorgan Chase & Co., the largest bank in the United States, said Thursday that it lost $2 billion in the past six weeks in a trading portfolio meant to hedge against risks the company takes with its own money.
The firm's stock plunged almost 7 percent in after-hours trading after the loss was announced. Stock in other bank stocks, including Citigroup Inc. and Bank of America Corp., also fell sharply.
"The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought," Jamie Dimon, JPMorgan's chief executive officer, said. "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. The loss was in a portfolio of the complex instruments known as derivatives and in a division designed to help control exposure to risk in the financial markets and to invest excess money from 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.
Mr. Dimon said the losses were "somewhat related" to that story but seemed to suggest that the problem was broader. He also said the firm should have looked into the division more closely.
The Wall Street Journal reported last month that the bank had invested heavily in an index of insurancelike products meant to protect against default by bond issuers. Hedge funds were betting that the index would lose value, forcing the bank to sell investments at a loss.