Fitch Ratings cut JPMorgan Chase & Co.'s credit rating one notch to A-plus from AA-minus late on Friday, citing the bank's disclosure of a $2 billion trading loss, the result of a failed hedging strategy.
While the ratings agency sees the loss as manageable, the potential for reputational risk and risk governance issues that the episode raises make the firm "no longer consistent with an 'AA-' rating," Fitch said. JPMorgan's rating remains well within investment grade territory.
"Fitch views the size of loss as manageable. That said, the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity. It also raises questions regarding JPM's risk appetite, risk management framework, practices and oversight; all key credit factors," Fitch said in a statement.
The downgrade also comes with a move to put JPMorgan, the biggest U.S. bank by assets, on Rating Watch Negative, meaning it could be downgraded again within a six month time frame.
JPMorgan is a global financial services company with $2.2 trillion in assets. Its disclosure of the trading loss was a shock, given the long-held view that it was a strong risk manager that went through the financial crisis without reporting a loss. It is an embarrassing admission, especially since Chief Executive Jamie Dimon has been an outspoken critic of the so-called Volcker rule to ban proprietary trading by big banks.
Still, Fitch says it believes JPMorgan's new rating continues to reflect its dominant domestic franchise, a solid and growing international franchise in investment banking and commercial banking.
"Capital remains sound and compares well with global peers, providing the bank with sufficient cushion to absorb a material idiosyncratic loss event. Fitch believes JPM continues to be well prepared to meet the minimum standards under Basel III," Fitch said, referring to new capital rules for global banks.
After Fitch's announcement JPMorgan's share price fell further in extended trading, sliding 0.8 percent to $36.68 after a 9.3 percent decline during the regular session on Friday.
Standard & Poor's has JPMorgan's credit rating one notch lower at A with a stable outlook while Moody's Investors Service now has the bank one notch higher than Fitch but on review for a downgrade.
The Ratings Watch Negative placed on the credit will be resolved, Fitch said, once it has further reviewed JPMorgan's response to risk management and oversight.