It’s been quite a while since bank stocks crashed over disclosed losses at top financial institutions. JPMorgan Chase sent bank stocks in Britain and the United States down after it has disclosed a $2 billion loss in trading for April.
It goes without saying that JPMorgan Chase’s stock took the hardest blow, as shares got hammered by 9 percent in premarket trading. Analysts say the other bank stocks plunged over regulatory fears and not the risk that other large banks would disclose losses.
Although the bank managed to avoid losses during the financial crisis, JPMorgan Chase had to undergo the same lack of credibility and intense scrutiny from regulators, investors and clients. Now that the bank had kept hidden a $2 billion trading loss it is likely JPMorgan Chase and its peers will be put under tighter scrutiny by regulators and investors.
For CEO Jamie Dimon, the $2 billion loss is a mistake that will cost him. Only last month, he was referring to the company’s unit assigned to handle risks as a very “sophisticated” funds guardian. Yesterday, Jamie Dimon came forward and told the media that the unit once praised had a $2 billion loss caused by an “egregious” failure.
On Thursday, CEO Jamie Dimon said: “The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought. There were many errors, sloppiness and bad judgment”.
Analysts explain that given the huge and expensive blunder, Jamie Dimon must watch his next steps. Goldman Sachs analysts told investors that to regain credibility, the bank must explain “conceptually how this could happen on such a large scale and the resulting changes that are going to be made”.
Finance professor Craig Pirrong told Bloomberg that with this failure the financial industry just lost “any chance they had of getting a relative loosening of Volcker rule, anything of that nature, that’s out the window”.
Co-author of the Volcker rule, Senator Carl Levin thinks that what happened at JPMorgan Chase could happen, if it hasn’t already, at any other bank. “The enormous loss JPMorgan announced today is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too-big-to-fail’ banks have no business making”.