- Associated Press - Thursday, May 10, 2012

JPMorgan Chase, the largest bank in the United States, startled markets late Thursday when it revealed it had lost $2 billion in a trading portfolio designed to hedge against risks the company takes with its own money.

The company’s stock plunged 6 percent in late electronic trading after the loss was announced. Other bank stocks, including Citigroup Inc. and Bank of America Corp., suffered heavy losses as well.

“The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought,” JPMorgan Chase & Co. CEO Jamie Dimon said. “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 most of its peers, and Mr. Dimon emerged as one of the most recognizable - and outspoken - figures in American finance.

The loss came in a division of JPMorgan designed to help control its exposure to risk in the financial markets and invest excess money in its corporate treasury. The bank said it may be forced to book at additional $1 billion loss for its final second-quarter results.

Bloomberg News reported in April that a single JPMorgan trader in London, known in the bond market as “the London whale,” was making such large trades that he was moving prices in the $10 trillion market.

Mr. Dimon said the losses were “somewhat related” to that story, but he seemed to suggest that the problem was broader. Mr. Dimon also said the company had “acted too defensively” and should have looked into the division more closely.

The Wall Street Journal reported last month that JPMorgan had invested heavily in an index of credit-default swaps, insurance-like products that protect against default by bond issuers.

Hedge funds were betting that the index would lose value, forcing JPMorgan to sell the investments at a loss. The losses came in part because financial markets have been far more volatile since the end of March.

Partly because of the $2 billion trading loss, JPMorgan said it expects a loss of $800 million this quarter for a segment of its business known as corporate and private equity. It had planned on a profit for the segment of $200 million.

The loss is expected to hurt JPMorgan’s overall earnings for the second quarter, which ends June 30. Mr. Dimon apologized for the losses, which he said occurred since the first quarter, which ended March 31.

“We will admit it, we will learn from it, we will fix it, and we will move on,” he said. Mr. Dimon spoke in a hastily scheduled conference call with stock analysts, and reporters were allowed to listen.

Among other bank stocks, Citigroup was down 3.3 percent in after-hours trading, Bank of America was down 2.9 percent, Morgan Stanley was down 2.4 percent, and Goldman Sachs Group Inc. was down 2.2 percent.



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