Friday, June 29 07:45:38
JPMorgan Chase's losses from disastrous derivatives trades will likely amount to $4 billion to $6 billion in the second quarter, far more than the original estimate of at least $2 billion, according to a person familiar with the matter.
The bank has gotten out of more than half of the position, which it disclosed to investors last month, according to the source.
In exiting those trades, the bank dealt directly with hedge fund S aba Capital Management to close out that hedge fund's winning trades, according to a source familiar with the fund. Sab a founder Boaz Weinstein was among the first to call attention to the outsize bets by a JPMorgan trader dubbed the "London Whale."
Despite the loss, JPMorgan is still expected to deliver the "solidly profitable" results that CEO Jamie Dimon predicted last week in congressional testimony, the source said. The bank declined to comment.
The company has a variety of tactics it can use to offset the derivatives trading losses and boost its quarterly results, including selling securities at a profit to book one-time gains and drawing down its provisions for bad loans and lawsuits.
The bank, the biggest in the United States by assets, earns about $5 billion each quarter. JPMorgan shares fell more than 5 percent early Thursday following a New York Times article that said internal projections at the bank in April said the losses could reach $8 billion to $9 billion, assuming worst-case conditions.
The shares dropped 2.45 percent to $35.88 at the close of New York Stock Exchange trading on Thursday while the KBW Bank stock index slipped 0.36 percent. On May 10, Dimon, the bank's CEO, pegged the loss at $2 billion and warned the figure could rise by an additional "$1 billion or more." He has not publicly raised the loss estimate since, but has said the bank has made progress in limiting the loss.
Guessing the ultimate size of the loss has been a pastime on Wall Street, with estimates running as high as $5.9 billion, based of movements of obscure credit market indexes at the heart of the trades. JPMorgan's stock, at Thursday's NYSE closing price of $ 35.88, has lost 12 percent s ince the bank's May 10 disclosure. It's recovered slightly from its drop of nearly 17 percent in the first week after the disclosure of the trading loss. (C ) Reuters