Jpmorgan stock slammed due to loss
CEO admits to sloppiness, stupidity
JPmorgan Chase & Co. lost $15 billion in market value and a notch in its credit ratings Friday while a chorus of regulators and politicians reacted to its surprise $2 billion trading loss by demanding stiffer oversight for the banking industry.
Republican Senator Bob Corker of Tennessee called for a hearing into the losses that the largest U.S. bank disclosed Thursday, while Securities and Exchange Commission Chairman Mary 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 Dallas Federal 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.
Jpmorgan was far away the worst performer, however, falling 9.3 per cent on a day when some 212 million of its shares traded, the most volume in its history.
Fitch Ratings downgraded Jpmorgan’s debt ratings by one 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. “It also raises questions regarding JPM’S risk appetite, risk-management framework, practices and oversight — all key credit factors.”
CEO Jamie Dimon’s reputation also took a hit. For a leader lauded for steering his bank through the 2008 financial crisis without reporting a loss, the incident was embarrassing, especially given Dimon’s criticism of the so-called Volcker rule to ban proprietary trading by big banks.
“We know we were sloppy. We know we were stupid. We know there was bad judgment,” Dimon said in an interview with NBC television to be broadcast on Sunday.
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.”
Dimon recorded the segment to go with a wideranging interview he had done on Wednesday for NBC’S Sunday Meet the Press program.
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.
In a conference call disclosing the problem on Thursday, Dimon said the $2 billion in losses could rise by a further $1 billion.
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 an effective way to insure portions of their portfolio.
Dimon will undoubtedly be pressed by investors for more details about what went wrong when he hosts the bank’s annual shareholder meeting on Tuesday in Tampa, Fla.
Dimon had parlayed his bank’s reputation as a white knight during the financial crisis into a position as the de facto representative fighting against excessive post-crisis regulation.
“The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today,” said Democratic U.S. Representative Barney Frank, who co-authored the 2010 DoddFrank financial reform law.