JPMorgan Chase Has Lost $20 Billion On Its Bad Trade, Taking Into Account Share Price

Specialist Peter Giacchi, center, calls out prices as he works at the post that handles JPMorgan on the floor of the New York Stock Exchange, Friday, May 11. The bank's share price has tumbled following its announcement of a $2 billion trading loss.

By now you may have heard that JPMorgan Chase lost $2 billion on a bad trade. Multiply that by 10, and you're starting to get a better idea of how much it has really lost.

That's because the share price of the biggest U.S. bank by assets has tumbled by more than 11 percent since it announced the trading loss, shaving about $17.5 billion from its market value. JPMorgan shares were down another 2 percent on Monday, following a 9 percent tumble on Friday.

Shareholders aren't necessarily upset about the $2 billion loss itself. The bank has lost more money than that at different times in other businesses, the New York Times reminded us this morning, without causing much of a ruckus. Though the loss could grow to $4 billion or more, by some estimates, that's still a far cry from the $90 billion or so in revenue the bank has raked in over the past year.

The real worry for investors is the damage the episode has done to JPMorgan's previously sterling reputation for managing its risks, the increasing heat of the water around CEO Jamie Dimon and -- maybe most importantly -- the fact that this debacle comes at the worst possible time for the bank, regulation-wise.

JPMorgan's huge goof makes it more likely that regulators will slap fetters on all the big banks when it comes to trading with their own money. The murky markets for credit derivatives, which JPMorgan invented, could be exposed to a little more sunlight, which always seems to make bank profitability wither.

Such regulations could have helped save JPMorgan from its current embarrassment, but they could also make it less likely the bank will be able to win a big jackpot on further gambling binges.

Meanwhile, the debacle also shines a light on the fact that there are still big, lumbering banks out there that are a constant threat to tip over and crush the entire U.S. economy. That will lead to more calls to break up the big banks, to take away the government's implied backing for them, or at least make regulators more determined to force them to hold more capital against future losses. All of that will make it harder and more expensive for the banks to do business. As Peter Cohan pointed out at Forbes, further credit-rating downgrades like the one Fitch Ratings delivered last week could also add to the bank's cost of doing business.

Considering all this, the bank and its shareholders might end up finding that this episode has destroyed a lot more than just $20 billion.

Here are nine other big bank disasters:

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• JPMorgan Chase Loses $2 Billion

  On May 10th, the U.S.'s largest bank JPMorgan Chase announced one of its London trading desks had lost <a href="http://www.huffingtonpost.com/2012/05/10/jpmorgan-chase-london-whale_n_1507662.html?ref=business" target="_hplink">$2 billion on bad bets on credit derivatives</a>.

• UBS Trader Loses $2 Billion

  Kweku Adoboli, a trader for Swiss bank UBS, lost <a href="http://www.huffingtonpost.com/2011/09/15/ubs-traders_n_963715.html" target="_hplink">$2 billion on unauthorized trades in September 2011</a>.

• MF Global Collapse

  Brokerage firm <a href="http://www.huffingtonpost.com/2011/10/31/mf-global-to-file-for-bankruptcy_n_1066902.html" target="_hplink">MF Global filed for Chapter 11 bankruptcy</a> in October 2011 after a failed $6 billion bet on European debt.

• Rogue Societe General Trader Loses $6 Billion

  Hailed as "history's biggest rogue trading scandal" at the time, French trader Jerome Kerviel was convicted in October 2010 of <a href="http://www.huffingtonpost.com/2010/10/05/jerome-kerviel-rogue-fren_n_750464.html" target="_hplink">losing French bank Societe General around $6 billion</a> due to unauthorized trades.

• Bear Sterns Bought By JPMorgan Chase

  After a run on investment bank Bear Sterns nearly caused its collapse in 2007, JPMorgan bought the firm for $2 a share the following March, <a href="http://www.businessweek.com/bwdaily/dnflash/content/mar2008/db20080316_356646.htm" target="_hplink">Businessweek</a> reports.

• AIG Largest Single Bailout

  Insurance company AIG became the recipient of the <a href="http://www.huffingtonpost.com/2012/05/08/aig-bailout-realize-15-billion-profit-taxpaers-gao_n_1498645.html" target="_hplink">largest ever government bailout for a single corporation</a> when a $182 billion rescue package saved it from a liquidity crisis following a <a href="http://www.huffingtonpost.com/2012/05/08/aig-bailout-realize-15-billion-profit-taxpaers-gao_n_1498645.html" target="_hplink">downgrade of its credit rating</a> in 2008.

• Washington Mutual Bankruptcy

  One of the biggest players in retail banking and mortgages during the housing crisis, Washington Mutual filed for Chapter 11 in September 2008, after sustaining losses on billions of dollars worth of mortgage and home loans, <a href="http://www.cnbc.com/id/46793926/WaMu_Emerges_From_Bankruptcy_Protection" target="_hplink">CNBC</a> reports.

• Citigroup Bailout

  Citigroup came to the brink of collapse after it reported losses around $10 billion in 2007, in part due to failed mortgage investments, <a href="http://money.cnn.com/2008/01/15/news/companies/citigroup_earnings/index.htm" target="_hplink">CNNMoney</a> reported. To keep the bank afloat the government issued <a href="http://www.huffingtonpost.com/2008/11/23/feds-consider-plan-to-res_n_145856.html" target="_hplink">a $20 billion bailout in November of that year</a>.

• Merill Lynch Shocks Investors With Big Loss

  After projecting a $4.5 billion loss during the third quarter of 2007, Merrill Lynch shocked investors by reporting a $7.9 billion deficit from trading mortgage-backed securities and other structured products, <a href="http://money.cnn.com/magazines/fortune/fortune_archive/2007/11/26/101232838/" target="_hplink">according to CNNMoney</a>.

• Barings Bank Collapse

  One time star trader Nick Leeson was responsible for sinking British bank Barings after losing $1 billion when an an earthquake struck Kobe, Japan in 1995, causing his investments in the Nikkei to fail as the Japanese stock exchange crashed, <a href="http://www.time.com/time/specials/packages/article/0,28804,1937349_1937350_1937488,00.html" target="_hplink">TIME reported</a>.

Comments

[macs3rd]

05:08 PM on 07/13/2012

Hello out there?? Are there any more recent stories about JPMorgan Chase that would be worth reading? Or is it still just a Tempest in a Teapot? Fodder for intrusive government regulation? Class warfare? DId anyone believe the Darling Mr Diamond? A little mistake, a few bad guys, no big deal?? Really, puleeze, these people (bankers Wall Street Big Business ) know exactly what they are doing, We need Roosevelt and I mean Teddy Roosevelt. And Prince Jamie belongs in prison.

[TheMadHedgeFundTrader]

08:36 PM on 06/01/2012

This is far and away the world’s premier banking institution. Estimates of the huge trading losses by the London “whale”, initially pegged at $2 billion, have since skyrocketed to $6 billion. I’ll ignore the Internet rumors that speculate about a $30 billion hickey. As you well know, almost everything on the net is not true, except what you read in my own newsletter.

Back in the 1980’s when I was at Morgan Stanley, the inside joke was to look for nice office space for ourselves whenever we visited clients at (JPM). The expectation was that they would take us over when Glass-Steagle ended, as they were both the same institution before the Securities and Exchange Act broke them up in 933. When the separation of commercial and investment banking finally came in 1999, Morgan Stanley had grown far too big to swallow and the egos too big to manage.

I’ll tell you another way to look at this trade. (JPM) lost 4.7% of its capital, so Mr. Market chewed 30% out of its capitalization. Sounds a bit overdone, no? The bad news is already in the price. A large part of the offending position has already been liquidated.

Mad Hedge Fund Trader

[macs3rd]

05:12 PM on 07/13/2012

Mr Mad Hedge Fund Trader: You and the rest of the Wall Street parasites belong in prison. Better yet, dump all of you out in the wilderness with a hoe and an axe. See if you survive any better than the working people, the victims of your greed

[olerealist]

09:19 AM on 05/16/2012

WHAT IS THE LESSON LEARNED FROM THE J P MORGAN-CHASE FIASCO?

Economic journalist, Robert Samuelson, addresses this question in his May 16th syndicated column.

In my view, the interesting thing about it is that while he makes valid interesting points about what not to lean from it, he, accidentally or otherwise fails to identify the real lesson.

He makes a plausible point that the real risk of mainstream banking is not the exotic and evil sounding things like “derivatives and credit swaps, etc. but in ordinary lending. He correctly points out that the big crises really stem from the volatile swings from extreme optimism to extreme pessimism which are difficult for “regulators” to effectively control.

From all this, the “lesson” I see is that in the nature of the beast the only effective and practical remedy is to prevent the banks from getting so humongous that the inevitable swings do not paralyze the whole system. So the only answer is to BREAK THEM UP like we did with “Ma Bell”.

[firstad]

09:11 PM on 05/15/2012

T4Timbuktu - The report in the Wall Street Journal, The Los Angeles Times, and many other papers point to the loss of the gains of the stock market this year as half of the gains. Sorry you don't like facts. You learn to research before you make comments here. Start doing that.

[arachnenetworker]

06:36 PM on 05/15/2012

This incident is important not for a measly $2b loss for a lousy bank, it's important because it demonstrates that all the lousy banks are still betting our 401k's on the derivative markets, and there's apparently nothing to stop another crash like 2008.

[skibum415]

07:49 AM on 05/16/2012

(Part 1/2)

Guess what, if you are still letting other people manage your 401k (outside of corporate stock investment where you have no choice) without looking at what they are investing in then you are the fool. You have the ability to choose whether you want to be in stocks (some risky/others stable), derivatives (high risk/high reward), maybe you are nearing retirement and should be in precious metals (gold, silver, platinum) or T-Bills. The entire point I'm making is I don't know of any 401k that doesn't let you chose the fund you wish to be a part. With those funds come a prospectus and it is up to you to know where your money is invested. Now they aren't going to say "we are 12% Apple, 8% Microsoft, etc." instead they say, "we are 20% established technology", maybe you want a fund to jump in on the Facebook IPO Friday, look for "10% emerging technology" things like that.

(con’t)

[olerealist]

09:26 AM on 05/16/2012

QUOTE: "Now they aren't going to say "we are 12% Apple, 8% Microsoft, etc."

REPLY: If there is not any law that requires such disclosures, there ought to be.
It could be a quarterly statement. Not that much of a burden.

[arachnenetworker]

09:56 AM on 05/16/2012

I'm well aware of what's happening with my money, mainly because it's not invested with a so-called bank. Banks used to be controlled as to what they could and could not risk. That stopped. The world is still crashed. Get a grip and realize that the banks have proven to be the children and they need regulation.

[skibum415]

07:49 AM on 05/16/2012

(Part 2/2)

The point is you need to stop being a child, expecting the government should take care of you and do it yourself. The SEC is there to prevent companies from cooking the books as they did in the late 90's. Back then, we in the market were investing in stocks when we didn't have honest information about the company. That is where the government steps in. Not saying what can and cannot be traded because people are too foolish to look at what they may or may not be invested. Especially after the crash in 2008, if you want to be involved in derivatives but opt not to watch your fund (it's value is updated nightly) then it isn't the government's fault, it is partially the fund manager and brokerage house's fault, but mostly - and I mean 98%, the fault lay at the foot of the investor.

If you don't know what you are doing invest your money in T-Bills and look for 2-3% each year. As long as our country doesn't go bankrupt, (which they may just stop paying but not likely) you'll make money but it'll take a long time but hey, you don't have to do a thing. At 2-3%, it's just better than a savings account at a credit union.

[olerealist]

09:31 AM on 05/16/2012

QUOTE: " if you want to be involved in derivatives but opt not to watch your fund (it's value is updated nightly) "

REPLY: So we ought to become "DAY TRADERS". Right?

[themodernleader]

05:02 PM on 05/15/2012

Hamlets Mill:  I can not articulate how appreciative I am for your wisdom and historical information and the implications you bring to our self-denial readers and leaders conspiring with China and false doctrines to destroy our middle class, then our nation.
    As an economist by degree you are more qualified than I.  I have taken two basic courses using Samuelson's text and an extraordinary course called "comparative economic systems" , ideas that have remained with me all my life.  What you predict about contagion I bow to your judgment.  In other words prediction 5,000 dollar an ounce gold makes no sense if the  currency is suddenly abandoned  and replaced by a new currency and new leadership.
   The best way out is bankruptcy on our terms rather than our creditors' demands.  Devaluation of our currency destroys our private savings. It keeps in place massive unemployment compounded as  buying power disappears and desperate humanity call for a new order.  As you point out the situation demands wise planning and full employment  and  tariffs as first priorities.  All I hear is a drum beat for contraction and no sacrifice by our oligarchy.

[JEP]

04:15 PM on 05/15/2012

"The murky markets for credit derivatives, which JPMorgan invented, could be exposed to a little more sunlight, which always seems to make bank profitability wither."
WHICH JPMORGAN INVENTED
WHICH JPMORGAN INVENTED
WHICH JPMORGAN INVENTED
WHICH JPMORGAN INVENTED

Don't let that all-pertinent factoid fade from memory any time soon, it is fundamental to the issue at hand.

[jcimasi]

03:51 PM on 05/15/2012

"JPMorgan Chase Has Lost $20 Billion On Its Bad Trade, Taking Into Account Share Price"

How ignorant! Mr. Gongloff should get the gong. His foray into yellow journalism sounds sensational but is junk reporting. Shares of a listed company are sold in the secondary market. A decline in share price does not impact the company's P&L or balance sheet - unless they own some of their own stock.

[olerealist]

09:37 AM on 05/16/2012

QUOTE: "A decline in share price does not impact the company's P&L or balance sheet - unless they own some of their own stock"

REPLY: So don't worry about stokholder losses. Just worry about the net worth of the MEGABANK?

[jcimasi]

12:00 PM on 05/16/2012

It certainly IS a worry to the stockholders. But, the article was titled: “"JPMORGAN CHASE Has Lost $20 Billion On Its Bad Trade, Taking Into Account Share Price." That is as patently false as your comment is irrelevant to the point I made.

[pat k]

11:57 AM on 05/16/2012

Doesn't JPM own a substantial amount of their own stock? And, doesn't a drop in their share price then enable repurchase at favorable conditions? Thus, between the public freakout and the loss writedown, they come out smelling like roses?

[jcimasi]

01:26 PM on 05/16/2012

I don't know how many shares they hold in their treasury. They could purchase shares back if they were in the market for their stock. But even their board might not think that a stock buy back is a good investment for them or their shareholders at this time.

In addition, if they did own a lot of their stock, one would have to subtract the declined value of their existing treasury stock against any possible gain from the purchase of and increase in the price of the stock in the secondary market. Regardless, it is unlikely that JP will come out of this situation smelling like anything except a cow flop. :)

But, alas, this imbroglio will not break the bank. They will still have a huge profit this year.

[silverspirit2011]

03:25 PM on 05/15/2012

Does anyone realize, the market would try to protect its investment in the bank, where as regulation will decrease its market value?

Good regulation is against market interests - but not the general economies interest. Until the market accepts this, it cannot make value judgments on legislation, or what is a good price for share trading.

This is short term-ism intersecting with politic reality. And transparency of businesses - something ron paul always forgets to mention.

[melinum]

01:05 PM on 05/15/2012

tarp money gone by the wind, tracking the bail out money.

http://www.nytimes.com/packages/html/national/200904_CREDITCRISIS/recipients.html

http://projects.propublica.org/bailout/list

http://money.cnn.com/news/specials/storysupplement/bankbailout/

[albatrossabct]

12:43 PM on 05/15/2012

Chase operates its forex market investments on a 100/1 ratio for every dollar they invest they get 100 in credit, this means there loss is not 2 billion but 200 billion investors should dump this stock immediately.

[skibum415]

08:06 AM on 05/16/2012

I've never heard of operating on margin like that, even if you ARE the brokerage. Also, I thought JPMorgan was investments with Chase being banking, credit card, mortgage, etc.. There is a sort of Chinese firewall to use a legal term where money doesn't transfer between the two unless the customer initiates it.

Also, JPMorgan Chase has a current valuation of ~$188 Billion which means the loss of $2 Billion is just barely over 1.06% of its valuation.

The reason the stock has tanked so badly is because Dimon came out and hit the Sunday shows and was so forceful. Frankly, I'm looking for the bottom (likely today or tomorrow people will see it is below value) and am going to add it to my portfolio. While the government wants a whipping boy Dimon came out and gave them one when a simple press release (which is how this is typically handled in the past) would have sufficed.

That said, all those wanting to get in on a bank who has been around a long time, bought numerous other banks, DIDN'T take a bail out (while they did get money when the government begged they take on Bear Stearns assets and liabilites), and is growing, now might be the time to do your own research to consider it. After all, a 9% hit the first day followed by a 2% hit the day after. Watch for JPMorgan to have an up day today or tomorrow.

[skibum415]

08:51 AM on 05/16/2012

Oops, as I log into my account to check where JPM closed yesterday I see it was already an up day. I went to do some after hours (I guess it is before hours now) trading and see today JPM will open higher than where it closed yesterday.

Alright, it's already on its way to recovery (the stock price, not JPM).

[meanstr]

11:48 AM on 05/15/2012

Who got the 2 billion are was it fake nothing money ,because the way I feel about stock is someone pays someone for the stock that person got the money has the seller borrowed the money off the person he sold the stock to and if the buyer wants can he have the seller buy it back for the same amount, Are is it now just a piece of paper only worth what anyone will pay for it.

[pat k]

01:49 PM on 05/15/2012

You commenting on high finance is rather comical, as I see you cannot write a coherent sentence.

[taragowski]

11:30 AM on 05/15/2012

The fired CEO's will take there millions in retirements . This is why there was a group called Occupy Wall Street . They started out with a correct agenda . It was a shame it was boondoggle out of control .

[hamsteronwheel]

10:44 AM on 05/15/2012

we are all hamsters on neocon, SuperMob, "financially engineered" wheels...

"“Make no mistake: fraud is a business model,” said Janet Tavakoli"

http://www.huffingtonpost.com/janet-tavakoli/fraud-as-a-business-model_b_950806.html

ALL of their smoke and mirrors do nothing for our country except extract and redistribute ALL of the wealth to the top 1%!

They are FINANCIAL TERRORISTS and should receive one way tickets to bernie's cell.

12/12/10

"The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.

In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available."

http://www.nytimes.com/2010/12/12/business/12advantage.html?_r=1&src=busln&pagewanted=all

derivatives hit $700 TRILLION per the graphic in the article

[hamsteronwheel]

10:35 AM on 05/15/2012

we are all hamsters on neocon "financially engineered" and "financially innovated" wheels

Thomas Lee, chief equity strategist at JPMorgan, would really, really like a tax repatriation holiday.

Lee’s report estimated that companies could have as much as $1.4 trillion parked overseas, and that they might bring between $500 billion and $1 trillion into the U.S. if Congress passes a proposal allowing business to repatriate cash at a 5.25 percent tax rate, rather than the standard 35 percent.

“In our view, this carries greater positive implications for equities compared to QE,” Lee writes. “In other words, from a market’s perspective, this likely represents a substantial catalyst.”

However, Lee’s findings stand in marked contrast to another report issued by JPMorgan in May. That release, compiled by JPMorgan researchers, concluded that even if a tax holiday is passed, most of the money would likely be reinvested overseas. In other words, it “would not result in a flood of repatriation,” according to CNBC.

http://www.huffingtonpost.com/2011/06/30/jpmorgan-repatriation-holiday_n_888197.html