Published June 28, 2012
Shares of J.P. Morgan Chase (JPM) retreated 3% Thursday morning on a report suggesting the banking giant’s recently-disclosed trading blunder could morph into a staggering loss of as much as $9 billion.
According to The New York Times, the red ink stemming from the failed hedging strategy has been mounting in recent weeks as the largest U.S. bank by assets attempts to unwind its positions.
While J.P. Morgan disclosed in May it lost $2 billion and acknowledged the losses could double within two quarters, internal models recently projected losses of as much as $9 billion, the Times reported. An internal report in April showed that worst-case conditions could result in losses of $8 billion to $9 billion, the paper said.
Wall Street has been rocked by the trading blunder at J.P. Morgan, which had been considered one of the safest big U.S. banks. It has also tarnished the reputation of CEO Jamie Dimon, who had been seen as a savvy risk manager, especially for his ability to steer J.P. Morgan through the financial crisis.
Still, Dimon has said J.P. Morgan will post a profit in the second quarter after having earned $5.4 billion in the first quarter. Management is expected to disclose new details on the trading losses when the bank is scheduled to report results on July 13.
The trading-loss tally could shrink if market conditions go in J.P. Morgan’s favor, the Times reported. The bank has been understandably quiet about its specific positions, not wanting to tip its hand to hedge funds and other market participants smelling blood in the water.
The failed hedging strategy was operated by J.P. Morgan’s Chief Investment Office, particularly traders operating in London like Bruno Iksil, the so-called “London Whale.”
Shares of J.P. Morgan slumped 3.32% to $35.57 Thursday morning, significantly outpacing a 0.60% decline on the S&P 500.