JPMorgan reveals shock $2bn trading loss

JPMorgan Chase, the largest bank in the United States, has said it lost $2 billion over the past six weeks in a trading portfolio supposedly designed to hedge against risks the company takes with its own money.

The company's stock plunged almost 7% in after-hours trading after the loss was announced. Other bank stocks, including Citigroup and Bank of America, suffered heavy losses as well.

Overall, after accounting for other gains, losses at its chief investment office (CIO) are estimated to come in at $800m in the second quarter.

The loss could be as big as $1bn, chief executive Jamie Dimon said in an unscheduled conference call.

"The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought,'' Dimon told reporters. "There were many errors, sloppiness and bad judgment.''

The loss came in a portfolio of the complex financial instruments known as derivatives, and in a division of JPMorgan designed to help control its exposure to risk in the financial markets and invest excess money in its corporate treasury.

Some analysts were sceptical that the investments were designed to protect against JPMorgan's own losses. They said the bank appeared to have been betting for its own benefit, a practice known as "proprietary trading.''

Bank executives, including Dimon, have argued for weaker rules and broader exemptions.

JPMorgan has been a strong critic of several provisions that would have made this loss less likely, said Michael Greenberger, former enforcement director of the Commodity Futures Trading Commission, which regulates many types of derivatives.

The trading loss is an embarrassment for a bank that came through the 2008 financial crisis in much better health than its peers. It kept clear of risky investments that hurt many other banks.

Bloomberg News reported in April that a single JPMorgan trader in London, known in the bond market as "the London whale,'' was making such large trades that he was moving prices in the $10 trillion market.

Dimon said the losses were "somewhat related'' to that story, but seemed to suggest that the problem was broader. He also said the company had "acted too defensively,'' and should have looked into the division more closely.

The Wall Street Journal reported last month that JPMorgan had invested heavily in an index of credit-default swaps, insurance-like products that protect against default by bond issuers.

Hedge funds were betting that the index would lose value, forcing JPMorgan to sell investments at a loss. The losses came in part because financial markets have been far more volatile since the end of March.