JP Morgan loses $4bn on trades
JP Morgan Chase & Co, the biggest US bank, posted $4.4bn of losses from its “London Whale” trades, but also said some of its traders might have tried to conceal bad credit bets in the first quarter.
The disclosure was the first indication the bank has made that the problems in its Chief Investment Office may have extended beyond bad risk management and bad judgment about markets. JPMorgan said it had cleaned up the CIO and that the problems were isolated to the group.
The bank said it might generate another $700m to $1.7bn of losses from the credit derivatives trades.
The CIO mis-valued its credit derivatives positions in the first quarter, which overstated the group’s net income by $459m for that period, JPMorgan said.
The CIO, which manages risk for the overall bank and invests excess deposits, will now focus on conservative investments and will no longer trade credit derivatives, JPMorgan said. Another group will manage what is left of the trades.
“We have put most of this problem behind us and we can now focus our full energy on what we do best,” Chief Executive Officer Jamie Dimon said in a statement.
The trading losses have been a black eye for a CEO who was respected for keeping his bank consistently profitable during the financial crisis.
Even with the CIO losses, JPMorgan posted second-quarter net income of $4.96 billion, or $1.21 a share, compared with $5.43 billion, or $1.27 a share, a year earlier.
The derivative loss after taxes reduced earnings per share by 69 cents, the company said.
JPMorgan made more mortgage loans, which helped results.
The bank expects to file new, restated first-quarter results in the coming weeks.
The company’s shares rose 0.6 percent to $34.25 in trading before the New York Stock Exchange opened.
The derivatives loss stemmed from a hedging strategy gone wrong in the London office, where market sources said trader Bruno Iksil was among those making whale-sized bets.