JPMorgan’s trading loss is said to rise at least 50% to surpass $2 billion

May 16, 2012 by · Leave a Comment
Filed under: Credit News 

I didn’t want to jump all over this story because it seemed to be really hyped up.   First I saw headlines that were talking about “a fresh look at banking regulations because of loss”, like we didn’t need to strengthen them after the 2007-08 crisis.  As if  we all just forget about the trillions of dollars that were sucked out of the market, declining housing prices and major government support to almost any companies that could call themselves a “financial institution”.

I hope our attention span is longer than that.

Now I am reading on CNBC that the $2 billion was just an initial estimate and these positions are not “unwound” and could still materially affect the bottom-line of JP Morgan.   At the same time I am hearing of a possible default and exit of Greece in Europe.  From what I have read, it looks like these bets are connected to Europe and if they are taking a bath like this, it would be safe to assume they have some exposure to this developing situation.   Many experts were stating on the record that the European debt crisis was not over and that all the stop-gap measures the ECB was implementing were not permanent fixes.   Could this be the straw that breaks the camels back and starts unforeseen events down the road?

The Federal Reserve did meet today and it seemed to be warming to the possibility of more stimulus to support our “recovery”.  Emphasis was added because it still feels like we are still in the same muck as before with gas and food prices becoming more elevated.   Gold prices have been soft as of late but it is May so we will need to sit back and see what transpires.

CNBC – The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank’s initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses.  When Jamie Dimon, JPMorgan’s chief executive, announced the losses last Thursday, he indicated they could double within the next few quarters. But that process has been compressed into four trading days as hedge funds and other investors take advantage of JPMorgan’s distress, fueling faster deterioration in the underlying credit market positions held by the bank.

A spokeswoman for the bank declined to comment, although Mr. Dimon has said the total paper trading losses will be volatile depending on day-to-day market fluctuations.

The Federal Reserve is examining the scope of the growing losses and the original bet, along with whether JPMorgan’s chief investment office took risks that were inappropriate for a federally insured depository institution, according to several people with knowledge of the examination. They spoke on the condition of anonymity because the investigation is still under way.

The overall health of the bank remains strong, even with the additional losses, and JPMorgan has been able to increase its stock dividend faster than its rivals because of stronger earnings and a more solid capital buffer.

Still, the huge trading losses rocked Wall Street and reignited the debate over how tightly giant financial institutions should be regulated. Bank analysts say that while the bank’s stability is not threatened, if the losses continue to mount, the outlook for the bank’s dividend will grow uncertain.

The bank’s leadership has discussed the impact of the losses on future earnings, although a dividend cut remains highly unlikely for now. In March, the company raised the quarterly dividend by 5 cents, to 30 cents, which will cost the bank about $190 million more this quarter.

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