JPMorgan's 'London Whale' Trading Loss May Be as High as $9 Billion

JPMorganNew York -- JPMorgan Chase & Co (JPM) is under renewed scrutiny in the wake of a The New York Times report that losses from a bungled credit-derivatives trade could be as much as $9 billion, much more than earlier estimated.

Shares of the biggest bank in the United States fell as much as 5.4% in trading before the New York Stock Exchange opened as investors and analysts rushed to determine the significance of the report. The shares were down 3.5% shortly before the start of trading.

JPMorgan Chief Executive Jamie Dimon had on May 10 pegged the loss at $2 billion and warned it could rise by another "$1 billion or more." He hasn't raised the loss estimate since, but said in a congressional hearing last week that the company would be "solidly profitable" in the current quarter. The company normally earns about $5 billion every three months.

The losses could be significantly more than the initial $2 billion estimated as the bank has unwound positions in recent weeks, The New York Times reported, citing people briefed on the situation. An internal report at the bank projected in April that the losses could reach $8 billion to $9 billion, assuming worst-case conditions, the newspaper said. The bank has said that it has been reducing its potential losses since then.

JPMorgan declined to comment on the story.

Dimon has promised to give a more complete report on the situation on July 13 when the company releases results through the end of June.

Beyond the exact amount of this loss, investors should be concerned about the impact of JPMorgan's response to this debacle on the company's earnings power, analyst Christopher Mutascio of brokerage Stifel Nicolaus & Co. wrote in a report early Thursday. JPMorgan may move to keep up its reported profit by taking more one-time gains from selling securities that yield relatively high rates of interest, he noted. Doing so would reduce profits in the coming quarters.

The bank has said it has already taken $1 billion of such gains to offset the losses. It sold about $25 billion of profitable securities to take the gains.

Investors should also be concerned about the impact of the loss on the company's plans to buy back stock, analyst Andrew Marquardt of Evercore Partners said in a note Thursday.

The company had suspended its buyback program shortly after announcing the trading loss because, Dimon said, the bank wanted to continue building capital to meet higher minimums being set by regulators.

Increase your money and finance knowledge from home

Investing in Startups

The lucrative and risky world of startups.

View Course »

Introduction to Economic Indicators

Measure the performance of the economy.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

like Gladys explained I can't believe that anyone able to make $9901 in 4 weeks on the internet. did you look at this link

July 03 2012 at 1:59 PM Report abuse rate up rate down Reply

How could Jamie ...." .....not be telling the truth" since he kept on saying that he didn't know how much they will lose.....that is all he said. As the trade unwinds, you see that the loss is greater than they expected it to be initially.

Who cares, the bank makes$20 plus billion per year and more.

Banks lose money on various transactions/customers every day. Make money at other times. That is the definition of banking. Sounds like some of you have only been in a bank to cash a check or make a deposit, but have no clue what else they do. You people belong in no-load mutual funds.

July 03 2012 at 10:01 AM Report abuse rate up rate down Reply

Yeah, we are shocked to learn Mr. Dimond was not telling the truth and the losses are much larger. And that there is gamboling going on in the back room. We have 9 bil in the room, will anyone take this furhter on the phone or in the sec?

There is a difference between regulation and government control. There is no difference in a scheme pretending to be an industry that has neither. Losses of this size created in this manner effect whole economies. Only governemnts can contain them. It is a bad problem for one bank. Should that trigger another and another ... only the light headed can't see where that leads.

June 30 2012 at 3:14 PM Report abuse rate up rate down Reply
1 reply to splintercottage's comment

Maybe Chase Bank will need another Tax Payer Gift. I can hear it now--Listen
I want some more of that Obama money. No shortage here.

July 02 2012 at 8:22 AM Report abuse rate up rate down Reply

I think these bankers HAVE learned something from the financial meltdown. They learned that if you take big risks and win, you get the mansion in Connecticut. If you take big risks and lose, you get fired with a ton of stock options that will be worth something after the taxpayers bail out your bank. This has nothing to do with banking, it is gambling with other people's money.

They learned that, unlike the S&L meltdown of the 80's, nobody is going to prison.

How big are the risks?

The Bank for International Settlements (BIS) tracks the total amount of derivatives outstanding and reports semi-annually

The notational value of all derivatives outstanding in December 2011 was $648 TRILLION dollars or 648 thousand billion dollars.

Dimon is right, the difference between $2 billion and $8 billion is a rounding error.

June 30 2012 at 2:05 AM Report abuse rate up rate down Reply

Go away JPMORGAN, and the rest of you parasites. Banking is a truly evil institution that has allowed the creation of idiot billionaires who have no talents, nor produce one thing of intrinsic value. One of the best things that could happen to this planet would be the elimination of Wall Street, and all its insipid bean counting thugs.

Encourage your children to pursue a worth while profession in the sciences, manufacturing, education, or medical field. Discourage them from becoming yet another parasitic MBA or Lawyer. It will help save this world.

June 29 2012 at 4:22 PM Report abuse rate up rate down Reply

A billion here a billion there . . . Who Cares! When you are a bank you have a license to steal!!!!

June 29 2012 at 10:02 AM Report abuse rate up rate down Reply

So much for the smartest man in finance Mr. Dimon. Making money for yourself does not equal intelligence. Their are plenty of gansters and drug lords that know how to make money. Wall Street is no different.

June 29 2012 at 9:54 AM Report abuse rate up rate down Reply

3 billion =9billion? thats why i say never trust a banker. THEY CAN'T ADD!

June 29 2012 at 7:57 AM Report abuse rate up rate down Reply

None of this is surprising. In the new corporate paradigm, each year employees are divided into stars top 1/3, acceptable performers, and those needing employment. Fund managers who sensibly evaluate and secure modest returns are frequently put on notice and then fired for what is considered mediocre performance. Accordingly it makes sense to take extraordinary and disproportionate risks to show you are a top performer each quarter or year. Ask the guy at Citibank let go for suggesting the subprime mortgage securities had too much risk.

June 29 2012 at 7:39 AM Report abuse rate up rate down Reply

These guys don't need to jump.... Washington will see to it that they get another bailout.

June 29 2012 at 1:17 AM Report abuse rate up rate down Reply