JP Morgan Chase Announces a 2 Billion Trade Loss

JP Morgan Chase CEO Jamie Dimon held a conference call with analysts after the closing bell on Thursday afternoon. During the call, CEO Dimon announced that the largest U.S. bank registered a two billion dollar trading loss from derivatives trading.

JPMorgan shares fell 6.73% in afterhours trading and brought other financial shares lower.

“What happened violates our own standards and principles for how we operate the company” Dimon said. “This is not how we want to run a business” he added.

Dimon spoke on the conference call about errors, bad judgment, and grievous mistakes that were made with the bad trades.

JP Morgan is widely perceived as the best risk managers in the U.S. banking industry among large banks. But after yesterday’s news about the 2 billion trade loss, some are beginning to question whether that statement still rings true.

Large bets were placed on corporate credit of an index of 125 companies at JP Morgan’s London based Chief Investment Office by a trader named Bruno Iksil, nicknamed “the London Whale” due to the large price swings that emerged when he was trading in the market.

The credit indexes are linked to the default risk on a group of at least 100 companies. JP Morgan’s investment office bet on a sustained economic recovery with their complex trades. The price of the credit index is quoted in yield spreads which rises along with the perceived likelihood of increased corporate defaults, according to Bloomberg.

Lately, the spreads have been steadily rising. Earlier in the week, the spreads rose the most in almost four months.

JP Morgan estimates that their business unit with the portfolio will post a loss of $800 million in the current quarter, excluding private equity results and litigation expenses. The bank previously forecast the business unit would gain a profit of about $200 million.

CEO Dimon said  JP Morgan is repositioning its synthetic position and is unable to unwind its position at this time. He noted that the losses could widen or improve during the rest of the quarter. 

After Dimon’s statement about the possibility of the losses worsening, international markets have generally reacted negatively to the news.

U.S. equity futures for Friday are sharply lower.

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