JPMorgan (NYSE: JPM) Stock Price Falling as Losses Could Hit $7 Billion
Since the company announced May 10 that it lost billions on a bad trade, the JPMorgan (NYSE: JPM) stock price has dropped about 20%. And it may have more to go. CNN Money reported on Monday afternoon that the trading losses are closer to a range of $6 billion to $7 billion, citing several sources who work on trading desks that specialize in the derivatives JPMorgan Chase used to make its trades. Investors at the Deutsche Bank Global Financial Services Investor Conference in New York drilled CEO Jamie Dimon with questions Monday about how the chief investment office (CIO) racked up the sizable losses. The biggest U.S. bank by assets, JPMorgan is under pressure from investors and regulators alike to enlighten them on how the CIO, which is in charge of managing excess cash while minimizing risk, made dicey and costly bets on illiquid credit derivatives, some so big they misrepresented market prices. The $350 billion portfolio managed by the CIO, Dimon reiterated, has a very short duration and an average credit rating of AA designed to "very conservatively handle" interest-rate risks. The heart of the losses, Dimon explained, was the synthetic credit derivative, and just "a part" of the broader portfolio. To continue reading, please click here...
Since the company announced May 10 that it lost billions on a bad trade, the JPMorgan (NYSE: JPM) stock price has dropped about 20%.
And it may have more to go.
CNN Money reported on Monday afternoon that the trading losses are closer to a range of $6 billion to $7 billion, citing several sources who work on trading desks that specialize in the derivatives JPMorgan Chase used to make its trades.
Investors at the Deutsche Bank Global Financial Services Investor Conference in New York drilled CEO Jamie Dimon with questions Monday about how the chief investment office (CIO) racked up the sizable losses.
The biggest U.S. bank by assets, JPMorgan is under pressure from investors and regulators alike to enlighten them on how the CIO, which is in charge of managing excess cash while minimizing risk, made dicey and costly bets on illiquid credit derivatives, some so big they misrepresented market prices.
The $350 billion portfolio managed by the CIO, Dimon reiterated, has a very short duration and an average credit rating of AA designed to "very conservatively handle" interest-rate risks. The heart of the losses, Dimon explained, was the synthetic credit derivative, and just "a part" of the broader portfolio.
The losses may yet increase as investigations continue, but Dimon was resolute that the affair is an "isolated" event and no big shocks will be uncovered. He was adamant the bank has a "fortress balance sheet" that has been "barely nicked by this thing."
Dimon said, "There is no outcome that will be a disaster for this company. I am not sitting here worried about the ultimate loss on the thing." JPMorgan Strength Tested While JPMorgan declined to comment on its trading activities, it is crystal clear from public data filed with The Depository Trust & Clearing Corporation that JPMorgan has not sold any of its position in the losing trades to date.
"Part of the problem of what they were doing is that they were too big in the trade to ever be able to trade out of it," Garth Friesen, a co-chief investment officer at AVM and a member of the Federal Reserve Bank of New York's advisory group, told CNN Money. "Whatever the size was, it's clearly not something that you can call one or two dealers and sell."
When it becomes clear that JPMorgan is unwinding its positions, it's likely that hedge funds will start to pounce into that index and buy protection, propelling the bank's losses to swell even further.
"There will be a stare-fest between the hedge funds and JPMorgan. It will cost JPMorgan an unimaginable fortune to push the spread back in their direction," James Rickards, former general counsel at Long-Term Capital Management, a hedge fund that required a $3.6 billion bailout from the Federal Reserve because of its massive losses from its trading activities, told CNN Money.
Rickards added, "It's not just a battle between Dimon and the hedge funds. It's been JPMorgan and the regulators, the FBI, Congressional committees and stock holders. It's not clear that their tolerance for pain will be as high as Jamie Dimon."
For the moment, the one thing JPMorgan has working in its favor is the market's bet that the bank is too big to fail, making it hazardous to push too hard on the other side of its trade.
JPM Stock Buybacks Suspended During Dimon's damage control session, it also was announced that the legendary bank would suspend its daily stock repurchase program.
Dimon said during the conference that the suspension was not because of the mammoth trades gone bad, but because the bank needs the money to meet international capital rules.
JPMorgan noted it acquiesced with regulators to increase capital levels to "what we think our Basel III target will be" Dimon said. He was referring to international banking rules that require the largest global financial companies to maintain higher capital levels.
Dimon did say he intends to restart the buyback at some point, but would not name a date, saying, "We want to box this thing first."
JPMorgan's decision to postpone share buybacks minimizes the risk that regulators would force the bank to reduce or suspend its dividend, Jaret Seiberg, a senior policy analyst at Guggenheim Securities LLC, told MarketWatch.
In addition, the move improves the bank's respected image at a time when the final touches are being put on key financial regulations in Washington.
Seiberg wrote, "By taking the initiative itself to suspend repurchases, JPMorgan appears to be acting like a responsible adult. That will buy it credibility in the coming weeks when Jamie Dimon appears on Capitol Hill."
JPMorgan was recently granted authorization to buy back $12 billion in stock this year, and an additional $3 billion in 2013 following the Federal Reserve stress test.
At that time, Dimon said the company would be in a position to buy back stock as long as its share price stayed around $45.
"We are trying to do everything by the book," Dimon said Monday.
In trading Monday, while the Dow soared 135 points, shares of JPM closed down 2.93% at $32.51. JPM stock has slumped more than 21% over the past month, and the company has lost close to $30 billion of market value since the admission.
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Tags: JP Morgan (NYSE: JPM) Stock Price, JPM, JPM Earnings, JPMorgan (NYSE: JPM) losses, NYSE: JPM
CNN Money reported on Monday afternoon that the trading losses are closer to a range of $6 billion to $7 billion, citing several sources who work on trading desks that specialize in the derivatives JPMorgan Chase used to make its trades.
Investors at the Deutsche Bank Global Financial Services Investor Conference in New York drilled CEO Jamie Dimon with questions Monday about how the chief investment office (CIO) racked up the sizable losses.
The biggest U.S. bank by assets, JPMorgan is under pressure from investors and regulators alike to enlighten them on how the CIO, which is in charge of managing excess cash while minimizing risk, made dicey and costly bets on illiquid credit derivatives, some so big they misrepresented market prices.
The $350 billion portfolio managed by the CIO, Dimon reiterated, has a very short duration and an average credit rating of AA designed to "very conservatively handle" interest-rate risks. The heart of the losses, Dimon explained, was the synthetic credit derivative, and just "a part" of the broader portfolio.
The losses may yet increase as investigations continue, but Dimon was resolute that the affair is an "isolated" event and no big shocks will be uncovered. He was adamant the bank has a "fortress balance sheet" that has been "barely nicked by this thing."
Dimon said, "There is no outcome that will be a disaster for this company. I am not sitting here worried about the ultimate loss on the thing." JPMorgan Strength Tested While JPMorgan declined to comment on its trading activities, it is crystal clear from public data filed with The Depository Trust & Clearing Corporation that JPMorgan has not sold any of its position in the losing trades to date.
"Part of the problem of what they were doing is that they were too big in the trade to ever be able to trade out of it," Garth Friesen, a co-chief investment officer at AVM and a member of the Federal Reserve Bank of New York's advisory group, told CNN Money. "Whatever the size was, it's clearly not something that you can call one or two dealers and sell."
When it becomes clear that JPMorgan is unwinding its positions, it's likely that hedge funds will start to pounce into that index and buy protection, propelling the bank's losses to swell even further.
"There will be a stare-fest between the hedge funds and JPMorgan. It will cost JPMorgan an unimaginable fortune to push the spread back in their direction," James Rickards, former general counsel at Long-Term Capital Management, a hedge fund that required a $3.6 billion bailout from the Federal Reserve because of its massive losses from its trading activities, told CNN Money.
Rickards added, "It's not just a battle between Dimon and the hedge funds. It's been JPMorgan and the regulators, the FBI, Congressional committees and stock holders. It's not clear that their tolerance for pain will be as high as Jamie Dimon."
For the moment, the one thing JPMorgan has working in its favor is the market's bet that the bank is too big to fail, making it hazardous to push too hard on the other side of its trade.
JPM Stock Buybacks Suspended During Dimon's damage control session, it also was announced that the legendary bank would suspend its daily stock repurchase program.
Dimon said during the conference that the suspension was not because of the mammoth trades gone bad, but because the bank needs the money to meet international capital rules.
JPMorgan noted it acquiesced with regulators to increase capital levels to "what we think our Basel III target will be" Dimon said. He was referring to international banking rules that require the largest global financial companies to maintain higher capital levels.
Dimon did say he intends to restart the buyback at some point, but would not name a date, saying, "We want to box this thing first."
JPMorgan's decision to postpone share buybacks minimizes the risk that regulators would force the bank to reduce or suspend its dividend, Jaret Seiberg, a senior policy analyst at Guggenheim Securities LLC, told MarketWatch.
In addition, the move improves the bank's respected image at a time when the final touches are being put on key financial regulations in Washington.
Seiberg wrote, "By taking the initiative itself to suspend repurchases, JPMorgan appears to be acting like a responsible adult. That will buy it credibility in the coming weeks when Jamie Dimon appears on Capitol Hill."
JPMorgan was recently granted authorization to buy back $12 billion in stock this year, and an additional $3 billion in 2013 following the Federal Reserve stress test.
At that time, Dimon said the company would be in a position to buy back stock as long as its share price stayed around $45.
"We are trying to do everything by the book," Dimon said Monday.
In trading Monday, while the Dow soared 135 points, shares of JPM closed down 2.93% at $32.51. JPM stock has slumped more than 21% over the past month, and the company has lost close to $30 billion of market value since the admission.
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Tags: JP Morgan (NYSE: JPM) Stock Price, JPM, JPM Earnings, JPMorgan (NYSE: JPM) losses, NYSE: JPM