STOCK MARKET WATCH -- Thursday, 28 June 2012

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38. NYT: JPMorgan Trading Loss May Reach $9 Billion

http://dealbook.nytimes.com/2012/06/28/jpmorgan-trading-loss-may-reach-9-billion/

...When Jamie Dimon, the bank’s chief executive, announced in May that the bank had lost $2 billion in a bet on credit derivatives, he estimated that losses could double within the next few quarters. But the red ink has been mounting in recent weeks, as the bank has been unwinding its positions, according to interviews with current and former traders and executives at the bank who asked not to be named because of investigations into the bank...he bank’s exit from its money-losing trade is happening faster than many expected. JPMorgan previously said it hoped to clear its position by early next year; now it is already out of more than half of the trade and may be completely free this year.

...With much of the most volatile slice of the position sold, however, regulators are unsure how deep the reported losses will eventually be. Some expect that the red ink will not exceed $6 billion to $7 billion...JPMorgan plans to disclose part of the total losses on the soured bet on July 13, when it reports second-quarter earnings. Despite the loss, the bank has said it will be solidly profitable for the quarter — no small achievement given that nervous markets and weak economies have sapped Wall Street’s main businesses. To put the size of the loss in perspective, JPMorgan logged a first-quarter profit of $5.4 billion...

“Essentially, JPMorgan has been operating a hedge fund with federal insured deposits within a bank,” said Mark Williams, a professor of finance at Boston University, who also served as a Federal Reserve bank examiner.

As traders in JPMorgan’s London desk work to get out of the huge bet, which started generating erratic losses in late March, the traders based in New York are largely sitting idle, according to current traders in the unit.

“We are in a holding pattern,” said one current New York trader who asked not to be named.

The losses are the most embarrassing fumble for Mr. Dimon since he became chief executive in 2005...

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