JP Morgan Trading Losses: Implications for the Volcker Rule and Other Regulation [August 16, 2012] [open pdf - 452KB]
From the Document: "JP Morgan Chase (JP Morgan), the nation's largest bank holding company by asset size, had established a reputation for quality risk management. On May 10, 2012, Jamie Dimon, the bank's chairman and chief executive officer (CEO), held an unplanned conference call. As reflected in the firm's first quarter 2012 filings with the Securities and Exchange Commission (SEC), Mr. Dimon reported that, during the early part of the second quarter, a London-based office of the bank (insured depository) unit, the Chief Investment Office (CIO), sought 'to hedge the firm's overall credit exposure' and incurred 'slightly more than [a] $2 billion trading [paper] loss on … synthetic credit positions.' The CEO characterized the trading strategy behind the loss as 'flawed, complex, poorly reviewed, poorly executed and poorly monitored [and noted that] the portfolio has proven to be riskier, more volatile and less effective as economic hedge than we thought.' He also said that the portfolio still contained securities with 'a lot of risk and volatility going forward.... It could cost us as much as $1 billion or more…. [I]t is risky, and it will be for a couple of quarters.' The loss was charged to the bank's corporate and private equity division, which houses the CIO. During the conference call, Mr. Dimon also indicated that the loss would be partially offset by a $1 billion gain from the sale of securities by the unit, resulting in an $800 million second quarter loss for the division."
CRS Report for Congress, R42665