Shares of JP Morgan Chase & Co., the largest U.S. bank, have dropped sharply today, during the pre-opening of the trading session at New York Stock Exchange, after a report was published showing that trading losses could reach $9 billion, well above the estimate announced last month, of $2 billion, according to AP. In May, JP Morgan announced losses of over two billion dollars from derivatives transactions. New York Times claims, citing traders and executives that the estimated losses have recently increased after the bank revealed its positions. However, an internal report of the bank generated in April showed that, in the worst-case scenario, the losses could be over $8 billion.
More information on JP Morgan’s derivative transactions will be published in the report on second quarter financial earnings, which will be presented on July 13. Regardless of the big loss, the bank said that it will be profitable in the second quarter. The first quarter profit of JP Morgan was $5.4 billion. JP Morgan Chase & Co. recently accepted the resignation of head of investment department, Ina Drew, after the bank reported it lost $2 billion in portfolio trading of insurance against risks that the company takes with its own money.
Basically, the trading loss, made in the London investment office was a bullish bet on a corporate debt combined later with a bearish bet on high-yield securities. The trading loss announced by JP Morgan Chase is embarrassing for an institution that passed the 2008 financial crisis better than its rivals. The loss came in a portfolio of complex financial instruments known as derivatives and a division of the bank that was supposed to help control risk exposure in financial markets.
U.S. press announced in April that JP Morgan has invested heavily in the derivatives market and the hedge funds were betting against U.S. investment bank, forcing JP Morgan to sell at a loss. These losses were caused by the fact that financial markets were volatile in late March.
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