Saturday 12 May 2012

JP Morgan trading loss story (re-write)

JP Morgan Chase's shares value has plunged by 9% after its trading loss amounting to $2 billion (£1.2 billion), which subsequently resulted in a notch loss from a leading rating agency, the BBC Business reveals. 

It is believed that the loss is related to a London-based credit trader Bruno Iksil, who amassed an outsized position which hedge funds bet against. The bank has ruled out the strategy used in the loss trades is proprietary trade, which is prohibited by the so-called Volcker rule.

The regulators are now finalising Volcker rule, and are also pressed ahead to ensure the supposed “hedging” by JP Morgan would be covered in an expansive clamp down.

The head of SEC Mary Schapiro told the BBC that “all the regulators are focused on this”.

According to the Reuters, the bank's chief executive Jamie Dimon said it was not clear whether the bank had broken any law or violated any rules. “We've had audit, legal, risk, compliance, some of our best people looking at all of that.”

The losses prompted Richard Fisher, the President of Dallas Federal Reserve Bank, to call for the break-up of the top five U.S. Banks, and to say he is worried the biggest banks do not have adequate risk management.

Added to that, the debacle also undermines confidence in other U.S. banking shares, with Citygroup closing 4.2% lower, Goldmans Sachs falling 3.9% and Morgan Stanley losing 4.2%.

According to the BBC, Fitch downgraded the bank's debt from A plus to AA minus, and forecasts another downgrade could be possible in the next six months, even though the scale of the loss was “manageable”.

JP Morgan was believed to be in a much healthy condition than many other banks after avoiding risky investments in the 2008 financial crisis.

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