By Dawn Kopecki and Michael J. Moore - May 11, 2012 4:59 AM GMT+0700
JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said the firm lost about $2 billion on synthetic credit securities after an “egregious’” failure in its chief investment office, which the bank says focuses on hedging.
“This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed,” the New York-based company said today in a quarterly securities filing. JPMorgan declined 5.5 percent to $38.50 in extended trading at 5:55 p.m. in New York.
James "Jamie" Dimon, chief executive officer of JPMorgan Chase & Co. Photographer: Scott Eells/Bloomberg
May 10 (Bloomberg) -- Charles Lieberman, chief investment officer at Advisors Capital Management LLC, talks about JPMorgan Chase & Co.'s loss. Chief Executive Officer Jamie Dimon says the firm lost about $2 billion on synthetic credit securities after an "egregious" failure at its chief investment office. Lieberman speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)
May 10 (Bloomberg) -- JPMorgan Chase & Co. said losses tied to the chief investment office are bigger than the company projected. Bloomberg’s Erik Schatzker and Adam Johnson reports on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)
May 10 (Bloomberg) -- JPMorgan Chase & Co. said it lost about $2 billion tied to synthetic credit securities after positions taken by its chief investment office were riskier than expected. Bloomberg’s Erik Schatzker and Pimm Fox report on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)
The chief investment office has been transformed in recent years under Dimon into a unit that makes bigger and riskier speculative bets with the bank’s money, according to five former employees, Bloomberg News reported April 13. Some bets were so big that JPMorgan probably couldn’t unwind them without losing money or roiling financial markets, the former executives said.
Bloomberg News first reported April 5 that London-based trader Bruno Iksil had amassed positions linked to the financial health of corporations that were so large he was driving price moves in the $10 trillion market.
After the Bloomberg report, Dimon on a conference call said the news coverage was “a complete tempest in a teapot.”
The losses disclosed today were “a little bit to do with the article in the press,” Dimon said, without specifying who in the bank oversaw the trades. “I also think we acted a little bit too defensively” to the reports.
‘Flawed, Complex’
Synthetic credit products are derivatives that generate gains and losses tied to credit performance without the owner buying or selling actual debt. The losses occurred as the company sought to unwind a portfolio of the instruments used to hedge JPMorgan’s credit exposure.
“In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored,” Dimon said.
JPMorgan said the losses were partly offset by gains from the sales from its available-for-sale credit portfolio, resulting in a net loss for the firm’s corporate division, which includes the CIO, of about $800 million after taxes. The losses could widen or narrow during the rest of the quarter, Dimon said.
The bank is “repositioning” the synthetic credit portfolio, and the CIO “may hold certain of its current synthetic credit positions for the longer term,” the firm said.
To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net
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