The Truth About JPMorgan Chase's $2 Billion Loss: It's No Big Whoop

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JPMorgan ChaseHey, Wall Street? Chicken Little called. She says you need to stop overreacting to JPMorgan Chase's $2 billion trading loss. I mean, it's not as if the sky were falling...

For the past few days, investors have been mulling the implications of JPMorgan Chase's $2 billion derivatives trading loss, reported Friday. Ask some folks what it means, and they'll tell you it's proof positive we need to implement the Volcker rule. Others say that because JPMorgan (JPM) lost the money trying to "hedge" against market risk in Europe, the Volcker rule wouldn't have made a difference anyway.

Still others will tell you that whether JPMorgan Chase's actions were kosher or not, they're evidence of systematic risk in the banking industry, and maybe, just the tip of the iceberg.

The truth, though, is even more shocking than any of the above -- $2 billion in losses? It's hardly a disaster. It's more like a rounding error.

Too Big to Fail. Literally.

Let's put this in perspective, folks. Yes, JPMorgan Chase lost $2 billion in late April-early May trading. But last year, this bank earned $17.45 billion. While a "$2 billion loss" certainly sounds big, and grabs headlines, it's actually less than 11% of what this bank earns in a single year.

Analysts expect that even with the loss, the bank will earn more than $17 billion this year... then go on to earn nearly 18% more than that in 2013.

Simply put, JPMorgan is a fabulously profitable enterprise. It's so profitable that even a $2 billion loss can't trip it up.



What It Means for You

So far, Wall Street's Chicken Little-like prattling has cost Chase shareholders nearly $4 per share on Friday, followed by another buck and change lost in Monday trading, after which it held fairly steady and even gained a few cents here and there. But that's more than $19 billion in market capitalization vaporized, all over a couple of billion bucks' worth of lost profit.

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This is clearly an overreaction to the news, and entirely disproportionate to the magnitude of Chase's loss.

Warren Buffett famously said that the time for investors to "be greedy" is "when others are fearful." Right now, the fear surrounding JPMorgan Chase is practically palpable. Draw your own conclusions.

Motley Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of JPMorgan Chase.


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cherofnc

This is nothing compared to what the Obama administration did to stock and bond holders of GM. The investors a were given a dime for every dollar. The stocks is one thing...but the bond holders as well. Then Obama and Company gave the union members that stock. The sad thing is how many middle class 401K's had stocks and bonds with GM, and did not even know they were sc****ed and didn't even have a clue. Pay attention if you have 401K's etc.

May 17 2012 at 2:52 PM Report abuse rate up rate down Reply
cherofnc

Well let me see. Right now the stock market is down .75%. Yes. That means if you are an average investor, you are down between 1% and .50%. Or as they are saying about this little nothing kerfuffle with JPM, LOST it. Investing is a gamble folks. If every gambler took the $$ spent on slots, lottery and Black Jack, and invested it in the stock market, they probably would have more money...but maybe not. I do not understand what the big deal is except maybe the media is just trying to make a lot of noise to cover up and distract us from Joe Biden's meltdown.

May 17 2012 at 2:47 PM Report abuse rate up rate down Reply
Givemeabreak

These guys funneled Bernie Madoff's bucks to London, and looked the other way.
They are the "Rot at the top", along with the all the big banks, bought polititions and regulators.
We live in a keptocracy!
What we have now, are lots of people swimming in the "Washington- Wall Steet Cesspool"
Change it or get used to it.

May 17 2012 at 2:06 PM Report abuse rate up rate down Reply
sdotsb

Whether ONE Billion dollars is a lot or a little is based on individuals perceptions. My opinion is 2 Billion dollars is a ton of coin. I am sure the Manager at JPM that has this hit on his record would agree as well. Let's see her employment status at JPM next year this time...

May 17 2012 at 1:03 PM Report abuse rate up rate down Reply
antbid1

according to even Dimon himself this trading was Egregious, by definition this means conspicuosly and outrageously bad, What mental giant is writing articles saying this is no big whoop

May 17 2012 at 1:02 PM Report abuse rate up rate down Reply
dontcalld

the big whoop is coming if this gets a free reign

May 17 2012 at 12:56 PM Report abuse rate up rate down Reply
steve thompson

No more costly regulations needed. Let bad companies fail. Don't spend another dime of our money regulating. Just remove your money from these "investment " firms and they go bankrupt. Real simple, Huh..

May 17 2012 at 12:39 PM Report abuse rate up rate down Reply
steve thompson

Because some people think that a 2 bln dollar loss is no big deal, I have removed all my money from banks, savings and checking, 401k's, all retirement funds, sold all unnecessary investments, and have removed myself from the system. I don't worry about the market much anymore and I sleep better. Next, I think I'll buy farmland somewhere near the amish and grow strawberries, or maybe buy a stump-grinder. Then I'll have a real asset...tongue in cheek-heh-heh...

May 17 2012 at 12:30 PM Report abuse rate up rate down Reply
1 reply to steve thompson's comment
richarant

With a good sense of humor and that much common sense, you'll be just fine!

May 17 2012 at 12:43 PM Report abuse rate up rate down Reply
paulntraci99

And yet they try their hardest to screw the little guy for every penny they can get.

May 17 2012 at 11:25 AM Report abuse +2 rate up rate down Reply
1 reply to paulntraci99's comment
print4clr

What gets me are people like you blaming a pitance of what private money has a right to do but dare say anything about our government screwing us over? How about bailing out yet again the post office? Another $10 billion this year for these union jokers. How about failed solar policies like Solyndra, or GSA scandal? Our budget has skyrocketed to the top highest it's ever been and washington talks about a bank losing less than 1% of it's total value? So what. The banks already have to keep a reserve to cover all losses by law and if you want to invest with JP Morgan you know the risk. Private enterprise is under attack in the country and your brainwashed. By the way, Obama banks there.

May 17 2012 at 12:40 PM Report abuse rate up rate down Reply
Bill

Typical of this to be toned down as no big deal. Next thing you know, a $10 billion loss will be no big deal, then a $20 billion. All the while, the shareholders are jumping off of buildings while the CEO's rob them blind. No big deal America, by the time you wake up to empty bank accounts, it will be too late.

May 17 2012 at 11:16 AM Report abuse +4 rate up rate down Reply