May 11, 2012 U.S. stock futures fell as investors assessed a disclosure byJPMorgan (JPM) Chase & Co., the biggest U.S. bank by assets,that it had a $2 billion trading loss after positions in creditsecurities proved riskier than expected. JPMorgan tumbled 6.7 percent after the close of regular trading asChief Executive Officer Jamie Dimon said the bank made egregiousmistakes and that trading losses were self inflicted. Bank ofAmerica Corp., Citigroup Inc. |
(C), Goldman Sachs (GS) Group Inc.and Morgan Stanley (MS) lost at least 2.3 percent. Standard & Poor s 500 Index futures expiring in June slumped0.7 percent to 1,347.70 at 9 a.m. Tokyo time. Financial companiesin the S&P 500 had the biggest gain among 10 groups in 2012,surging 15 percent, or almost double the benchmark measure sadvance.
Dow Jones Industrial Average futures dropped 80 points, or0.6 percent, to 12,754. JPMorgan has held to a higher standard among the banks, WalterTodd, who oversees about $950 million as chief investment officerat Greenwood Capital in Greenwood, South Carolina, said in atelephone interview. If this happens to them, it raises thequestion: if they have these issues, who else does? JPMorgan led a slump in financial shares after the close of regulartrading. The group comprises 15 percent of the S&P 500 for thesecond-biggest weighting among 10 industries.
The bank s sharesretreated 6.7 percent to $38. Bank of America shares lost 2.6 percent to $7.50. Citigroupretreated 3.6 percent to $29.54. Goldman Sachs slipped 2.3 percentto $103.85. Morgan Stanley slumped 2.9 percent to $15.15.
WellsFargo & Co. lost 1.9 percent to $32.56. The Financial SelectSector SPDR Fund (XLF) fell 2.1 percent to $14.66. Default Swaps Climb The cost of protecting debt of JPMorgan from default rose to thehighest level in a month.
Credit-default swaps on the bank climbedto 118.5 basis points as of 5:42 p.m. New York time, according toprices from data provider CMA, which is owned by CME Group Inc. Thecontracts were at about 111 basis points before the announcement. Dimon said JPMorgan lost about $2 billion after a failure in itschief investment office, which the bank says focuses on hedging.The office has been transformed in recent years under Dimon into aunit that makes bigger and riskier speculative bets with thebank s money, according to five former employees, Bloomberg Newsreported April 13. We re accountable, and what happened violates our own standardsand principles about how we want to operate the company, Dimonsaid in a conference call yesterday.
This is not how we want torun a business. JPMorgan s Results On April 13, JPMorgan reported a 3.1 percent drop in earnings, asmaller decline than analysts estimated as mortgage revenue surgedand trading almost doubled from the fourth quarter. The bankbenefited from gains in mortgage lending as low interest rates andfederal incentive programs encouraged homeowners to refinance. Earnings at financial companies in the S&P 500 grew 12 percentin the first quarter, for the second-biggest increase among 10industries, according to data compiled by Bloomberg.
That s almostdouble the growth of profits of S&P 500 companies in theperiod. On average, 66 percent of financial companies in thebenchmark gauge beat analysts estimates in the period. Warren Buffett, whose Berkshire Hathaway Inc. has more than $20billion invested in U.S.
banks, said on May 5 the nation s lendershave liquidity coming out of their ears and are in better shapethan European rivals. Fine Shape I would put European banks and American banks in two verydifferent categories, Buffett, Berkshire s chief executiveofficer, said at the firm s annual meeting in Omaha, Nebraska. The American banking system is in fine shape. The European systemwas gasping for air a few months back until getting assistancefrom the European Central Bank, he said.
Wall Street firms including JPMorgan and Bank of America,emboldened after raising capital levels ahead of stricterinternational guidelines, are contesting efforts by U.S. policymakers to limit trading and risk. Banks had the biggest gain in the S&P 500 among 24 groups inregular trading yesterday, adding 1.5 percent, as European lendersrallied. Federal Reserve Chairman Ben S. Bernanke said the U.S.banking system is stronger and more resilient while still facingchallenges on credit quality and liquidity.
Banks still have more to do to restore their health and adapt tothe post-crisis regulatory and economic environment, Bernankesaid yesterday in a speech at the Chicago Fed s annual conferenceon banks. The S&P 500 rebounded in regular trading, advancing 0.3percent, as Greece attempted to form a new government and a declinein American jobless claims helped allay concern of a labor marketsetback.
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