JPMorgan Chase $4.4bn loss after trading fiasco

JPMORGAN CHASE revealed second-quarter losses of $4.4 billion from the trading fiasco in its London office and was forced to restate first-quarter earnings.

Overwhelming its otherwise strong underlying earnings, the bank also said yesterday that some of its traders “may have been seeking to avoid showing” the full extent of their losses.

It revised down first-quarter net income by $459 million and admitted “a material weakness” in internal controls.

In another blow to investors, the bank’s share buyback programme remains suspended “after discussion with the Federal Reserve”, said JPMorgan.

“We are not proud of this moment, but we are proud of our company,” said chief executive Jamie Dimon. “Obviously [with] this one, we shot ourselves in the foot. I can tell you this has shaken our company to the core.”

The restated earnings and possibility that traders lied about their deteriorating bets is likely to give more fuel to the Securities and Exchange Commission and other regulators examining the bank and shareholder lawsuits, said analysts.

Losses linked to the so-called “London whale” in the bank’s chief investment office were $4.4 billion, more than double the initial $2 billion estimate from Mr Dimon when he announced the problems in May but below some of the direst predictions.

Overall, the bank reported second-quarter net income of $5 billion, or $1.21 a share, on revenue of $22.9 billion. In the same quarter a year earlier, JPMorgan reported net income of $5.4 billion on revenue of $27.4 billion. But the slowdown is better than analysts had feared.

Mr Dimon said it represented “really good underlying performance” and “driven by diversified businesses”. The bank’s stock has fallen 16 per cent since Mr Dimon’s announcement that “stupid” and “egregious” trading in credit derivatives in the chief investment office had racked up huge losses.

JPMorgan’s retail business helped offset the weaker performance of the investment bank as mortgage activity picked up and the company recorded a pre-tax gain of $2.1 billion from reducing loan loss reserves as credit quality improved. – Copyright The Financial Times Limited 20120