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NEW YORK Big bets gone wrong aren't supposed to happen atbest-of-breed banks like JPMorgan Chase, which is headed by JamieDimon, one of Wall Street's most respected and successful bankerswith a reputation for managing risk well. But it did. The CEO, who steered the financial giant safely through the 2008-09financial crisis, came clean in a conference call with investorsafter the market closed Thursday and acknowledged that the bank hassuffered a $2 billion trading loss, mostly occurring in the pastsix weeks. News of the unexpected loss, which will result in an estimatedsecond-quarter loss of about $800 million for that segment of itsbusiness, resulted from what Dimon says was a "flawed" and"sloppy"derivatives trade executed by the bank's chief investmentoffice, whose job it is to manage or hedge the bank's own risk. Thedivision had been expected to show a profit of $200 million. "This portfolio," the bank said in a regulatory filing Thursday,"has proven to be riskier, more volatile and less effective as aneconomic hedge as the firm previously believed." In a conference call with investors, Dimon described the trade as"poorly executed and poorly monitored." Shares of JPMorgan (JPM), which closed up 10 cents to $40.74, fellnearly $7 in after-hours trading. The news packed a not-so-pleasant public relations punch, causing ahit to the firm's credibility and reputation. "It is one of the largest, safest and best-managed banks outthere," says Michael Farr, president of money management firm FarrMiller & Washington and a JPMorgan shareholder. "Part of me nowsays if it can happen there it can happen anywhere. This is thekind of surprise investors don't like." The admission of the huge loss, which was paritally offset by gainsfrom sales of other securities, could put a dent in investor trustin markets and the financial sector. "It sure does not inspire confidence," says David Kotok, chiefinvestment officer at Cumberland Advisors. "JPMorgan is the darlingof the banks. It has jilted its lover." Adds Paul Schatz, president of Heritage Capital: "The storywouldn't be so bad if it was any other bank but Jamie's. He set thestandard, post-crisis, and now an awful lot of investors are goingto question his risk management and if this is the firstcockroach." The controversial loss comes at a time when the government istrying to rein in risks at banks via more regulation and tightercontrols. Indeed, it shines a brighter spotlight on the so-called Volckerrule, which forbids banks to use their own cash to bet on themarket. The rule, which was part of the Dodd-Frank legislationpassed in the summer of 2010 but which has yet to go into effect,has been aggressively attacked by banks. But the trading mishap at JPMorgan will give Volcker rule backersmore ammunition in pushing for tougher sanctions on banks' risktaking, says Farr. "The Volcker rule will have more support as a result," he says. In the conference call, Dimon admitted as much, noting that the badtrading loss "plays right into the hands of a whole bunch ofpundits out there." The latest trading mishap on Wall Street sends a message that banksare still taking too much risk, says Gary Kaltbaum, president ofKaltbaum Associates. "It opens back up the fact that these banks are still (using theirown cash) for trading and that there are still trillions of dollarsin derivatives that no one knows the downside," he says. If there is a silver lining, it is that it is not likely the"beginning of a crisis or contagion," says Schatz. "It's (just) oneevent that involved some pretty stupid decisions.". The e-commerce company in China offers quality products such as China Extruded Aluminum Housing , LED Lamp Heat Sink, and more. For more , please visit LED Heat Sinks today!
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