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

The Huffington Post  |  By Posted: 05/14/2012 12:01 pm Updated: 05/14/2012 12:21 pm

Jpmorgan Chase 2 Billion
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="" 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="" target="_hplink">$2 billion on unauthorized trades in September 2011</a>.

  • MF Global Collapse

    Brokerage firm <a href="" 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="" 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="" target="_hplink">Businessweek</a> reports.

  • AIG Largest Single Bailout

    Insurance company AIG became the recipient of the <a href="" 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="" 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="" 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="" target="_hplink">CNNMoney</a> reported. To keep the bank afloat the government issued <a href="" 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="" 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=",28804,1937349_1937350_1937488,00.html" target="_hplink">TIME reported</a>.