JPMorgan Profit Declines on $4.4 Billion Loss From 'Whale'
Published: Friday, 13 Jul 2012 | 8:08 AM ET Text Size
By: Reuters
JPMorgan Chase, the biggest U.S. bank, said it had generated $4.4 billion of credit trading losses in its London offices, but posted overall profit that was barely dented by the trades.
Net income was $4.96 billion, or $1.21 a share, compared with $5.43 billion, or $1.27 a share, a year earlier. Results for both periods included special items. Analysts had expected earnings of 70 cents per share.
The derivatives portfolio lost $4.4 billion before taxes for the period, up from the $2 billion disclosed on May 10, the company said on Friday.
The bank lost money on bad derivatives trades in its Chief Investment Office, but said the events were isolated to the CIO, and that it has overhauled the group.
"Importantly, we have put most of this problem behind us and we can now focus our full energy on what we do best —serving our clients and communities around the world," JPMorgan CEO Jamie Dimon said in a statement.
Dimon added that the company no longer will trade a synthetic credit portfolio at the CIO and will maintain a more conservative approach. Another group will manage what is left of the trades.
"We have already completely overhauled CIO management and enhanced the governance standards within CIO," he said. "We believe these events to be isolated to CIO, but have taken the opportunity to apply lessons learned across the firm."
The bank also pushed $459 million of the losses from the bad credit trades into the first quarter, and said traders had misstated the value of the positions for that period. It also said it had material problems with its financial controls then.
JPMorgan expects to file new, restated first quarter results in the coming weeks.
"While our review continues, it is important to note that no client was impacted," he added.
After the earnings announcement, JPMorgan shares were little changed in trading before the opening bell. (Click here to get the latest quotes for JPMorgan.)
Analysts had expected the company to report earnings excluding items of 72 cents a share on $21.90 billion in revenue, according to a consensus estimate from Thomson Reuters.
JPMorgan announced on May 10 that it had lost at least $2 billion from a failed hedging strategy, and CEO Jamie Dimon warned that the losses could increase by $1 billion or more.
The derivatives loss stemmed from a hedging strategy gone wrong in the London office, where market sources said trader Bruno Iksil was among those making whale-sized bets.
A source said on Friday that Iksil had left the bank.
Friday's financial report came three months to the day after Dimon, 56, told stock analysts that news reports about Iksil and looming losses in London were a "tempest in a teapot."
That remark, which Dimon told Congress last month was "dead wrong," added to the damage the loss has done to his reputation and his argument that his bank is not too big to be managed safely.
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