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May 10, 2012

JP Morgan Announces $2 Billion In Losses, Chiefly Due To Account Used To Protect Against Risks

I guess that did not work as planned.

J.P. Morgan Chase JPM +0.25% & Co. has taken $2 billion in trading losses in the past six weeks and could face an additional $1 billion in second-quarter losses due to market volatility, Chief Executive James Dimon said Thursday in a hastily arranged conference call after U.S. markets closed.

The losses stemmed from derivatives bets gone wrong in the bank's Chief Investment Office, which manages risk for the New York company. The Wall Street Journal reported last month that large bets—by a London-based trader named Bruno Michel Iksil—being made in that office had roiled a sector of the debt markets.

The loss is a black eye for the bank, which sailed through the financial crisis in better shape than many of its peers...

J.P. Morgan shares fell $2.39, or 5.8%, to $38.35 in after-hours trading Thursday.

J.P. Morgan, the U.S.'s largest bank by assets, said in its quarterly regulatory filing that a plan it has been using to hedge risks "has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed."

If I have it right, a lot of this is due to a trader nicknamed the London Whale due to the huge positions he took. Apparently he was selling credit default swaps to others as a way to guarantee against risk; he himself was betting the companies he was investing in wouldn't default.

Well, they did, or a lot of them did. Which leaves JP Morgan on the hook for up to... $4.2 billion.


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posted by Ace at 07:07 PM

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