J.P. Morgan Chase & 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 the market closed.
The losses stemmed from derivatives bets gone wrong in the bank's Chief Investment Office, a part of the corporate branch of the bank that manages risk for the New York company. The Wall Street Journal reported last month that large bets 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 crisis in better shape than most of its peers, and Mr. Dimon. It comes at a time when large banks are fighting efforts by regulators to rein in risky trading with measures such as the so-called Volcker rule.
J.P. Morgan shares fell $2.34, or 5%, to $38.40 in after-hours trading Thursday.
J.P. Morgan, the nation's largest bank by assets, said in its quarterly filing with regulators 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."
Mr. Dimon said the so-called synthetic hedge, using insurance-like contracts known as credit-default swaps, was "poorly executed" and "poorly monitored." He said the bank has an extensive review underway of what went wrong, and that there were "many errors," "sloppiness" and "bad judgment" on the bank's part.
"We will admit it, we will fix it and move on," Mr. Dimon said. "This trading violates the Dimon principle."
The bank raised its estimate of losses at the unit to $800 million from the previous $200 million. Mr. Dimon said Thursday afternoon that the trading losses had been offset by $1 billion or so in gains on securities sales.