- Revised to $5.8B to reflect total losses of trade. Previous $4.4B figure referred to Q2 loss alone
JPMorgan Chase, the largest bank in the United States, said today that a trading blunder had cost the bank $5.8 billion since the beginning of the year — nearly triple its original estimate.
The company also raised the prospect that traders had attempted to conceal the trading loss.
"This has shaken our company to the core," CEO Jamie Dimon told analysts.
The bank said all managers in the London office responsible for the trade had been dismissed without severance pay and that it planned to revoke two years' worth of pay from each of those executives.
JP Morgan said the trade had cost $4.4 billion from April to June, and cost an additional $1.4 billion in the first three months of the year.
On Friday, Dimon said he believed the loss was mostly contained. In the worst case, if financial markets deteriorate severely, the bank could lose an additional $1.7 billion, he said. That would bring the total loss to $7.5 billion.
JPMorgan's original estimate of the trading loss, disclosed in May, was $2 billion.
Investors appeared relieved that the mess was mostly behind the bank, sending JPMorgan stock up $2.03, or six per cent, to close at $36.07.
Internal investigation raises questions
The bank said an internal investigation, including emails and voice messages, had called into question the values that traders placed on certain bets, and that the traders may have been seeking to mask losses.
Dimon told Congress last month that the trade was meant to hedge risk at the company and protect it in case "things got really bad" in the global economy. Instead, the trade has backfired and damaged the bank's reputation.
The bank said that it was reducing its net income for the first quarter by $459 million because it had discovered information that "raises questions about the integrity" of values placed on certain trades.
"We don't take it lightly," Dimon told Wall Street analysts on a conference call. He added: "We're not making light of this error, but we do think it's an isolated event."
Dimon said the bank had closed the division of the bank responsible for the bad trade and moved the remainder of the trading position under its investment banking division.
Overall, JPMorgan said it earned $5 billion, or $1.21 per share, for the second quarter.
The bank also suggested a $15 billion stock buyback program, which was suspended when the trading scandal broke, could be restarted.
Just three months ago, JPMorgan was viewed as the top American bank, guided by Dimon's steady hand. Since the disclosure of the trading loss, however, that reputation has been eroded.
Dimon, who originally dismissed concerns about the bank's trading as a "tempest in a teapot," appeared before Congress twice to apologize and explain himself, and several government agencies have launched investigations.
JPMorgan has lost about 13 per cent of its in market value since the loss came to light.
The bank could take back pay from executives in charge of the division where the losses occurred.
That procedure is known as a "clawback." It would be the first time JPMorgan exercised such a procedure.
The most likely candidate would be Ina Drew, JPMorgan's chief investment officer, who oversaw the division responsible for the loss and left the bank days after the disclosure. In 2011, her pay package totalled $15 million US.
The Wall Street Journal reported Friday that three other employees of the bank tied to the trade, including one who was known as the "London whale," had left the bank.
Under close questioning from lawmakers in June about his own role in setting up the investment division responsible for the mess, Dimon declared: "We made a mistake. I'm absolutely responsible. The buck stops with me."
The trading loss has raised concerns that the biggest banks still pose risks to the U.S. financial system, less than four years after the financial crisis erupted in the fall of 2008.