JPMorgan Reports $5B Profit, Expands Trading Loss
(NEW YORK) -- JPMorgan Chase, still reeling from trading losses in its investment unit, reported a second-quarter profit of $5 billion on Friday.
Investors were less interested in the largest U.S. bank’s net income than the total losses from bad hedged bets in their chief investment office. They announced that the loss this quarter from that the trade was $4.4 billion; estimates had the loss in the range anywhere from $2 billion to $9 billion. The bank has yet to make clear if there is a possibility of incurring more loss.
In a surprise announcement in a Securities and Exchange Commission filing ahead of the earnings report, JP Morgan revised its first-quarter earnings to show an additional loss because traders in the CIO unit were misrepresenting the extent of the losses.
According to the SEC filing, “… the firm has recently discovered information that raises questions about the integrity of the trader marks and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses in the portfolio during the first quarter.”
Jim Sinegal, director of financial services research at Morningstar, an investment firm, said the most important discovery from the earnings release is whether the loss is in line with what the company has recently described; that is, whether the problem has been contained.
CEO Jamie Dimon was previously criticized for describing the trading loss as a “tempest in a teapot,” before he later acknowledged that the losses were greater than he was told by his management. His chief investment officer, Ina Drew, resigned in May.
“What Jamie Dimon has done well is under promise and over deliver,” Sinegal said. “Not only has this escaped his eye as a risk manager -- but to the extent that it got out of hand more than once, if it turns out even bigger than that, you have to wonder if he has as much control as everyone believes him to have.”
“A loss of $5 billion or more would surprise me,” Sinegal said. “I think you would have to reassess your opinion of Dimon and all top risk managers. It is generally well accepted that JPMorgan has done the best job managing risk of the large banks.”
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