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JP Morgan chief reveals $2bn trading loss caused by ‘sloppiness’
Chief executive Jamie Dimon issues apology to stock analysts over company’s ‘embarrassing’ errors and ‘bad judgment’
JP Morgan Chase, America’s biggest bank, issued a surprise trading update after US markets had shut on Thursday, admitting it had incurred $2bn (£1.2bn) of trading losses in the past six weeks.
Jamie Dimon, chief executive of the bank which was praised for its handling of the 2008 banking crisis, cited “sloppiness” “bad judgment” and “many errors”.
During a hastily arranged conference call, he described the mistakes as “egregious”. The bank expects to take an additional $1bn in losses in the second quarter and said the losses occurred in its chief investment office, a part of the bank intended to manage risks. The trading position causing the losses involved credit default swaps, which insure against losses when companies or governments collapse.
In after-hours trading, JP Morgan Chase shares fell almost 7% and dragged other banks such as Citigroup and Bank of America lower.
Dimon said: “The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought. There were many errors, sloppiness and bad judgment.”
The trading loss is an embarrassment for a bank that came through the 2008 financial crisis in much better health than its peers. It kept clear of risky investments that hurt many other banks.
The loss came in a portfolio of the complex financial instruments known as derivatives, and in a division of JP Morgan designed to help control its exposure to risk in the financial markets and invest excess money in its corporate treasury.
Bloomberg reported in April that a single JP Morgan trader in London, known in the bond market as “the London whale,” was making such large trades that he was moving prices in the $10tn market.
Dimon said the losses were “somewhat related” to that story, but seemed to suggest that the problem was broader. Dimon also said the company had “acted too defensively,” and should have looked into the division more closely.
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