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JPMorgan admits billions of losses from flawed trading strategy with derivatives

Friday, May 18th 2012 - 16:43 UTC
Full article 21 comments
CEO Jamie Dimon to testify before the US Senate banking committee CEO Jamie Dimon to testify before the US Senate banking committee

The US mega-bank JPMorgan Chase & Co loss from derivatives trading may widen to 5 billion dollars, the Wall Street Journal reported on Friday. CEO Jamie Dimon personally approved the strategy that led to the trades, without monitoring how they were executed, the newspaper said.

Damion failure to closely regulate that activity caused resentment among executives whose departments face tighter oversight, according to the WSJ.

JPMorgan last week announced a 2 billion dollars trading loss on synthetic credit products, or derivatives tied to credit performance. Dimon said the transactions, intended to manage risk, were “egregious” failures by the bank’s chief investment office. JPMorgan has said the amount could increase by 1 billion or more as it winds down the positions.

Joseph Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on the 5 billion dollar estimate.

The largest US lender by assets didn’t have a treasurer during the five months when the trades took place, the Journal reported in a separate article.

JPMorgan’s chief investment office oversees about 360 billion dollars, or the difference between deposits and what the bank lends. Matt Zames, who was appointed to lead the division after the loss was reported, shook up leadership and announced a “renewed focus” on hedging risks.

The loss has prompted the Federal Reserve Bank of New York to examine how banks in its district are managing cash after receiving a flood of deposits since the credit crisis, according to a person familiar with the matter. Dimon, 56, has agreed to testify before a Senate committee that’s debating whether to tighten rules on trading by US lenders.

JPMorgan and regulators face pressure to explain the loss as lawmakers haggle over rules for the Dodd-Frank regulatory overhaul enacted two years ago.

The US Justice Department and the FBI in New York have begun a criminal probe of the trading loss, a person familiar with the matter has said. The inquiry is in its most preliminary stage, the person said.

The company was trying to reposition a portfolio of corporate credit derivatives and used a trading strategy that was “flawed, complex, poorly conceived, poorly vetted and poorly executed,” Dimon told shareholders this week at the bank’s annual meeting in Tampa.

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  • Malvinero1

    JPMorgan admits billions of losses from flawed trading strategy with derivatives
    What happens? The brits scum in this forum are mute,about the corrupt bankers and politicians,involving mainly USA and uk???
    llosa: I am waiting for your comments....
    MAy be need the PERONISTAS to fix it..

    May 18th, 2012 - 08:10 pm 0
  • Windrider

    Malvinero1 -- You're so right. This dirtbag (Dimon) has been fleecing Mainstreet and then runs like a crybaby to the Fed for 'bailouts' everytime he gets his 'bolas' in a squeeze. If that's not enough, their derivatives desk, run by the infamous Blythe Masters (talk about brit scum) has been aggressively shorting precious metal paper contracts (can you say, “silver”?) they don't have to hammer the price down for at least the last decade or two (no theory here, just documented FACT)...but then, don't get me started. I say we start hanging a few freakin' bankers...that would change things overnight.

    May 18th, 2012 - 08:25 pm 0
  • DanyBerger

    The UK based JP Morgan’s broker had produced the following balance sheet:

    He had earned 14m dollars in salary + bonuses
    He reported 100m dollars in earnings for JP Morgan
    But he lost 2bn dollars in the gambling.

    US taxpayers surely will bailout JPM for the hole and everyone happy until the next Great Brit Ponzi scam.

    May 19th, 2012 - 04:45 am 0
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