Bloomberg News

JPMorgan May Lose $5 Billion on Derivatives, WSJ Reports

May 18, 2012

JPMorgan last week announced a $2 billion trading loss on synthetic credit products, or derivatives tied to credit performance. Photographer: Peter Foley/Bloomberg

JPMorgan last week announced a $2 billion trading loss on synthetic credit products, or derivatives tied to credit performance. Photographer: Peter Foley/Bloomberg

JPMorgan Chase & Co. (JPM:US)’s loss from derivatives trading may widen to $5 billion, the Wall Street Journal reported.

Chief Executive Officer Jamie Dimon personally approved the strategy that led to the trades, without monitoring how they were executed, the newspaper said, citing people familiar with the matter that it didn’t identify. His failure to closely regulate that activity caused resentment among executives whose departments face tighter oversight, according to the Journal.

JPMorgan last week announced a $2 billion trading loss on synthetic credit products, or derivatives tied to credit performance. Dimon said the transactions, intended to manage risk, were “egregious” failures by the bank’s chief investment office. JPMorgan has said the amount could increase by $1 billion or more as it winds down the positions.

Joseph Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on the $5 billion estimate.

JPMorgan fell 0.5 percent to $33.77 by 10 a.m. in German trading, after closing at $33.93 in New York yesterday, down 4.3 percent.

The largest U.S. lender by assets didn’t have a treasurer during the five months when the trades took place, the Journal reported in a separate article.

JPMorgan’s chief investment office oversees about $360 billion, or the difference between deposits and what the bank lends. Matt Zames, who was appointed to lead the division after the loss was reported, shook up leadership and announced a “renewed focus” on hedging risks.

Regulatory Overhaul

The loss has prompted the Federal Reserve Bank of New York to examine how banks in its district are managing cash after receiving a flood of deposits since the credit crisis, according to a person familiar with the matter. Dimon, 56, has agreed to testify before a Senate committee that’s debating whether to tighten rules on trading by U.S. lenders.

JPMorgan and regulators face pressure to explain the loss as lawmakers haggle over rules for the Dodd-Frank regulatory overhaul enacted two years ago.

The U.S. Justice Department and the Federal Bureau of Investigation in New York have begun a criminal probe of the trading loss, a person familiar with the matter has said. The inquiry is in its most preliminary stage, the person said.

The company was trying to reposition a portfolio of corporate credit derivatives and used a trading strategy that was “flawed, complex, poorly conceived, poorly vetted and poorly executed,” Dimon told shareholders this week at the bank’s annual meeting in Tampa, Florida.

To contact Bloomberg News staff for this story: Nathaniel Espino in Beijing at nespino@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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Companies Mentioned

  • JPM
    (JPMorgan Chase & Co)
    • $60.33 USD
    • -0.23
    • -0.38%
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