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Bad Trade by JPMorgan Chase Ballooned to Over $5 Billion
On Friday, JPMorgan Chase said that a bad trade cost the bank $5.8 billion in 2012, which is triple the estimate it originally gave. The company also said that its possible traders tried to hide the blunder of the company.
“This has shaken our company to the core,” CEO Jamie Dimon said.
The company also said that managers tied to the bad trade were dismissed without receiving severance pay and that there is a plan in place to revoke two years’ worth of pay from those managers. JPMorgan said that it lost $4.4 billion from the trade between April and June. The company’s chief financial officer also said that the bank lost an additional $1.4 billion in the first three months of 2012. The original estimated loss from the trade by Dimon was $2 billion and was announced in May.
An internal investigation conducted by the bank has called into question the value that traders placed on the bets and that traders possibly tried to hide the losses, according to emails and voice messages. Last month, Dimon told Congress that the trade was supposed to hedge risk to the company and protect the company in the event that “things got really bad” with the economy.
Dimon said on Friday about the loss that “We don’t take it lightly. We’re not making light of this error, but we do think it’s an isolated event.” JPMorgan also announced that it was going to reduce its net income for the first quarter by $459 million because it discovered info that ‘raises questions about the integrity’ of values placed on trades. Dimon also announced that the division responsible for the bad trade was closed by the bank. The remainder of the division’s trading position was moved to the bank’s investment banking division.
JPMorgan said that it made $5 billion, which is $1.21 per share, for the second quarter. The second quarter encompasses April through June and includes the May 10 trading loss. JPMorgan has lost around 15 percent of its market value since the May 10 trading loss was announced. Ina Drew, JPMorgan’s former chief investment officer, offered to return the maximum amount of pay to the company, according to Dimon. The maximum amount of pay appears to be two years of pay. Drew earned $15 million in 2011.
Dimon was heavily questioned by U.S. lawmakers in June for his role in the creation of the investment division responsible for the bad trade. Dimon said, “We made a mistake. I’m absolutely responsible. The buck stops with me.”Bad Trade by JPMorgan Chase Ballooned to Over $5 Billion by Jim Vassallo