NEW YORK, June 28 JPMorgan Chase & Co
came under renewed scrutiny after the New York Times reported
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 percent 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 percent
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 $8-9 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