JPMorgan's "London Whale" spooks mutual fund managers

NEW YORK Wed Aug 29, 2012 2:45pm EDT

A woman walks past JP Morgan Chase's international headquarters on Park Avenue in New York July 13, 2012. REUTERS/Andrew Burton

A woman walks past JP Morgan Chase's international headquarters on Park Avenue in New York July 13, 2012.

Credit: Reuters/Andrew Burton

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NEW YORK (Reuters) - Mutual fund managers sold JPMorgan Chase shares after the London Whale fiasco, and by one measure had the lowest weighting of the stock in their portfolios in at least seven years, analysts at Bernstein Research said on Wednesday.

The data for the second quarter show how bruised JPMorgan has been by the roughly $6 billion of credit trading losses generated by its Chief Investment Office in the first half of the year. The losses were a body blow for a bank long seen as one of the best-managed on Wall Street, and they reinforced critics' arguments that the biggest banks are too big to govern.

Some investors seem to have sold JPMorgan's stock and bought shares of banks seen as simpler to understand, such as card-issuer American Express Co and regional banks U.S. Bancorp and PNC Financial Services Group Inc, Bernstein analysts said.

At the end of the second quarter, the 100 major mutual funds that the analysts looked at had just 79 percent as many shares of JPMorgan as the benchmark Standard & Poor's 500 index. That compared with a 92 percent weighting at the end of March, and was the lowest level in the seven years that the analysts have tracked the data.

Of the 100 major mutual funds tracked, 34 reduced their stakes in JPMorgan in the second quarter, while 9 added to their holdings.

"JPMorgan's relative weight slipped meaningfully after announcing its ... trading loss," the analyst team led by John McDonald wrote in a note. JPMorgan stock is "typically held by mutual funds at a level very close to its index weight," according to the report, which did not name individual funds.

JPMorgan shocked Wall Street on May 10 when it announced that a portfolio of credit derivatives at its Chief Investment Office in London had lost at least $2 billion, a figure that has since risen to $5.8 billion. The debacle has taken on the name "London Whale" for the size of positions taken by a trader in the office, although even with trading losses, JPMorgan posted nearly $5 billion of overall profits last quarter.

JPMorgan is still the most popular big bank among the funds by one measure, namely the number of holders. It is owned by 71 funds, compared with 68 funds that own Wells Fargo & Co, 44 that own Citigroup Inc and 24 that own Bank of America Corp -- the other three of the biggest four U.S. banks by assets.

JPMorgan shares fell 22 percent during the second quarter as the funds sold. The stock has stabilized since, rising 4 percent from June 30 through Tuesday.

The stock traded at $37.30 on Wednesday morning, up 17 cents for the day.

(Reporting by David Henry in New York; Editing by Dan Wilchins, Gary Hill)

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