JPMorgan $2 Billion Loss Hits Shares, Credit, Image
CEO of JPMorgan Chase James Dimon. (Reuters)
NEW YORK/LONDON (Reuters) - JPMorgan Chase & Co lost $15 billion in market value and a notch in its credit ratings on Friday while a chorus of regulators and politicians reacted to its surprise $2 billion trading loss by demanding stiffer oversight for the banking industry.
The loss by one of Wall Street's most respected banks embarrassed chief executiveJamie Dimon, a leader lauded for steering his bank through the fallout from the 2008 financial crisis without reporting a loss.
He said it wasn't clear whether the bank had broken any laws or violated any rules. "We've had audit, legal, risk, compliance, some of our best people looking at all of that."
The loss also invited regulatory scrutiny for a man who had all but led the charge to limit it, criticizing the so-called Volcker rule to ban proprietary trading by big banks.
The New York Times reported that the Securities and Exchange Commission has opened a preliminary investigation into JPMorgan's accounting practices and public disclosures about the trading loss.
On Friday, Securities and Exchange Commission ChairmanMary Schapiro told reporters: "It's safe to say that all the regulators are focused on this."
The debacle sparked new fears about big banks and prompted DallasFederal Reserve Bank President Richard Fisher, who has called for the breakup of the top five U.S. banks, to say he is worried the biggest banks do not have adequate risk management.
The fallout extended across much of the banking sector, with shares of some of Wall Street's top names declining on Friday. Among others,Citigroup dropped 4.2 percent, Goldman Sachs fell 3.9 percent and Bank of America slipped 1.9 percent.
JPMorgan was far away the worst performer, however, falling 9.3 percent on a day when some 212 million of its shares traded, the most volume in its history.
Fitch Ratings cut JPMorgan's debt ratings a notch and put all of the ratings of the bank and its subsidiaries on negative ratings watch.
While Fitch saw the size of the loss as manageable, "the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity," the ratings agency said.
"Fitch believes the potential reputational risk and risk governance issues raised at JPM are no longer consistent with an 'AA-' rating," it said.
Standard & Poor's put JPMorgan and its banking units on a negative outlook, but affirmed its current ratings.
In a conference call disclosing the problem on Thursday, Dimon said the $2 billion in losses could rise by a further $1 billion, and acknowledged they were linked to a London-based credit trader Bruno Iksil. Nicknamed the 'London Whale,' Iksil amassed an outsized position which hedge funds bet against.
The Federal Reserve Bank of New York, meanwhile, had been aware of JPMorgan's big trading loss and is currently monitoring the situation, according to a source close to the situation.
The Fed, which is JPMorgan's primary regulator, aims to ensure banks are sufficiently capitalized to withstand such trading mistakes, not to prevent them, the source said.
'STAKES ARE TOO HIGH'
The exact nature of the trading loss is still unclear, although sources said a host of asset managers, arbitrageurs and hedge funds were on the other side of the bet, viewing it as good value and a effective way to insure portions of their portfolio.