Econintersect: JP Morgan Chase (NYSE:JPM) rose 6% last Friday (13 July 2012) after the second quarter financial results were released showing a $5.8 billion loss on derivatives trades gone awry in its London office. The rise was attributed to investor relief that the losses weren’t larger, according to a Bloomberg article by Dawn Kopecki and Michael J. Moore. But almost half of that gain was given back on Monday as the sigh of relief turned into the start of another gasp for breath. What is going on? Isn’t all the news out and hasn’t the dust settled? No, not really. The same Bloomberg article indicates that all the losses may not have yet been realized, they may not yet be on the books. The publication time on the article is 7:00 pm, well after the markets had closed in New York.
The Bloomberg article quotes Jamie Dimon, JPM’s CEO as indicating the worst case scenario could see an additional $1.7 billion in losses yet to come. That would put the total, if all came to pass, at $7.5 billion, still short of the highest estimate GEI News could locate at the end of June, but exceed what was estimated at that time and more recently to be the top likely figure. From GEI News (29 June 2012):
This morning (28 June 2012) reports appeared at The Huffington Post, The New York Times and The Washington Post (Associated Press) which said that the losses from JP Morgan’s purported hedging positions could reach as high as $9 billion. The source of the report appears to be an internal memo by JP Morgan written in April. The New York Times stated in its article that some still believe the losses may still be contained in the $6 to $7 billion range. Econintersect received several severely critical comments a few weeks ago when the figure of $7 billion was mentioned based on information from confidential sources. Those sources now appear to be vindicated.
How strange that a figure supplied by an anonymous source a month ago should come so close to what now appears to be the final figure (between $5.6 and $7.5 billion). At the time JP Morgan was officially saying that losses could be to $2 billion, with a possibility that losses could grow to $3 billion or more.
Now JP Morgan is making assertions that traders may have intentionally mismarked trades to hide losses. This comes as focus is also being turned to the restatement of earnings from the first quarter. The 1Q/2012 results were adjusted downward by almost half a billion dollars.
In another Bloomberg article by Dawn Kopecki, it is asserted that former JPM executives with direct knowledge of how the trading unit operated have indicated there is little likelihood that traders would be able to mask losses.
Legal and regulatory authorities are zeroing in on JPM. From the 16 July Bloomberg article:
Ohio Attorney General Mike DeWine said July 14 that he is seeking to lead a proposed class-action lawsuit against JPMorgan after state pension funds lost more than $27.5 million due to the “alleged fraud.”
Editorial note: Are the wagon masters circling the wagons as the indians approach while trying to leave some of the settlers in their charge outside the circle to distract the attackers?
- Morgan’s Botched Trades May Generate $7.5 Billion Loss (Dawn Kopecki and Michael J. Moore, Bloomberg, 13 July 2012)
- JP Morgan Losses May Reach $9 Billion, and May Not (GEI News, 29 June 2012)
- JP Morgan Blaming Marks on Traders Baffles Ex-Employees (Dawn Kopecki, Bloomberg, 16 July 2012)