JPMorgan drops on report that trade loss may balloon

NEW YORK Thu Jun 28, 2012 3:37pm EDT

A flag hangs on the wall of the JP Morgan company stall on the floor of the New York Stock Exchange in New York July 15, 2010. REUTERS/Lucas Jackson

A flag hangs on the wall of the JP Morgan company stall on the floor of the New York Stock Exchange in New York July 15, 2010.

Credit: Reuters/Lucas Jackson

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NEW YORK (Reuters) - JPMorgan Chase & Co shares fell more than 4 percent on Thursday after The New York Times reported that losses from a bungled credit-derivatives trade could be as much as $9 billion, much more than the bank has estimated.

"The stock is down more than most from The New York Times story," said Christopher Mutascio, an analyst at brokerage Stifel Nicolaus & Co.

Shares of the biggest U.S. bank were off $1.61 to $35.17 in afternoon trade on the New York Stock Exchange after falling as low as $35.04 earlier in the session. JPMorgan declined to comment on the newspaper report.

On May 10 the bank's chief executive, Jamie Dimon, pegged the loss at $2 billion and warned the figure could rise by an additional "$1 billion or more." He has not 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 bank normally earns about $5 billion every three months.

The New York Times, citing people briefed on the situation, said the losses could be significantly more than the initial $2 billion estimated as the bank has unwound positions in recent weeks.

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.

Since disclosing the trading debacle, JPMorgan has said it was limiting its potential losses.

Guessing the ultimate size of the loss has been a favorite pastime on Wall Street, with estimates running as high as $5.9 billion, based on movements of obscure credit market indexes at the heart of the trades.

JPMorgan's stock, at Thursday's midday price of $35.16, was down 13.7 percent since the bank's May 10 disclosure, but all of that fall took place in the first week after the bad news.

Dimon has promised to give a more complete report on the situation on July 13 when the company releases results for the second quarter.

Beyond the exact amount of the trading loss, investors should be concerned about the impact of JPMorgan's response to this debacle on the company's earnings power, Stifel Nicolaus' Mutascio wrote in a report early Thursday. JPMorgan may move to keep up its profit by taking more one-time gains from selling securities that yield relatively high rates of interest, he said. Doing so would reduce profits in future 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 bank suspended its buyback program shortly after announcing the trading loss because, Dimon said, it wanted to continue building capital to meet higher minimums being set by regulators.

(Reporting by David Henry in New York; Editing by Bernadette Baum and John Wallace)

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Comments (5)
docroc wrote:
AT what point will society recognize and deal with the damage caused by these “too-big-to-fail” institutions and do something decisive about it?

Jun 28, 2012 7:55am EDT  --  Report as abuse
mulholland wrote:
This is not news. JPMorgan openly conceded they could not close the position and the loss was open ended. $9 Billion loss is low ball.The point is they cannot get out. Counter parties know how to trade against the JPMorgan position and are actively allocating capital in excess of what JPmorgan can summon. The end game is crash and burn.

Jun 28, 2012 8:25am EDT  --  Report as abuse
Harry079 wrote:
You got to know when to hold them, know when to fold them, know when to walk away, know when to run.

You never announce your losses with money still on the table, the time to announce the numbers is when the quarters done.

“JPMorgan declined to comment.”

The Shareholders will do the talking today.

Jun 28, 2012 8:32am EDT  --  Report as abuse
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