U.S. bank giant JPMorgan Chase (NYSE:JPM) surprised the market Thursday with a conference call after the close to announce a US$2 billion paper loss in certain trading activities.
According to research firm, Credit Sights Inc., the firm revealed that it suffered a US$2 billion trading loss in its synthetic credit portfolio, and warned that the losses could “easily get worse”, possibly rising by another $1 billion. It notes that the bank intends to reduce the size of that portfolio over time.
CreditSights says the losses highlight “some of the hidden risk associated with bank balance sheets as well as the shortcomings in [value-at-risk] models.”
It doesn’t expect the bank to alter its capital plans as a result of the loss, although it will weaken its capital position.
Moreover, CreditSights says that the revelation will give more ammunition to those calling for restrictions on banks’ trading activities, which is something the Volcker Rule is supposed to do, and something banks have staunchly resisted.