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Bank stocks hit by JPMorgan $2bn loss

Friday, May 11, 2012 - 02:31

May 11 - European banking stocks fell as investors worried about the news U.S. bank JPMorgan had suffered a trading loss of at least $2 billion from a failed hedging strategy, hitting the reputation of the bank and its CEO Jamie Dimon. Joanna Partridge reports

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European bank stocks have taken a hit and investors are jittery - after news of a shock trading loss at JPMorgan. The biggest U.S bank by assets said it lost at least $2 billion from a failed hedging strategy - that's being traced to its London offices. JPMorgan got through the financial crisis without reporting a loss and has been seen a strong risk manager. This news will hit the reputation of the bank and its CEO Jamie Dimon. He admitted in a hastily-arranged conference call with analysts the mistakes left egg on his face. SOUNDBITE: Jamie Dimon, CEO of JPMorgan Chase & Co, saying (English): "The synthetic credit portfolio was an strategy to hedge the overall credit exposure, which is our largest risk overall, in a stress credit environment. We're reducing that hedge, but in hindsight the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored. The portfolio has proven to be riskier, more volatile and less effective in economic hedge than we thought." Dimon wouldn't comment on specific individuals, but he confirmed the case related to a story which first appeared in the Wall Street Journal. The paper reported a UK-based trader is nicknamed the 'London Whale' due to the size of his investments. This is especially embarrassing given Dimon's public criticism of regulation such as the so-called Volcker rule, which looks to ban proprietary trading by big banks. Brenda Kelly is from CMC Markets. SOUNDBITE: Brenda Kelly, Markets analyst at CMC Markets, saying (English): "It does play very well as he says into the pundits who have been advocating the Volcker rule and also the actual scenario of being too big to fail. So I think it's not a good move. At the end of the day this guy did pride himself on being able to weather the storm back over the last few years and this is something, especially in the height of where regulations are taking place and the Volcker ruler due to come into effect in July, does not bode well for the actual bank itself." Nick Parsons from National Australia Bank says many investors hoped this kind of financial sector risk-taking was over. SOUNDBITE: Nick Parsons, Head of Markets, National Australia Bank, saying (English): "Controls generally had been tightened, and that largely that the excesses, if we could call it that, of the last decade were behind us. Now certainly those perceptions are being reappraised." The financial loss doesn't pose any serious risk to JPMorgan, but the knock to its reputation may be more significant. This episode is also likely to strengthen the case of those calling for tighter regulation in the banking sector. Joanna Partridge, Reuters

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Bank stocks hit by JPMorgan $2bn loss

Friday, May 11, 2012 - 02:31