Banking shares around the world fell Friday after JPMorgan Chase & Co, the US' biggest bank, said it had racked up losses of about 2 billion dollars in risky trading since the start of April.
The statement by the Wall Street investment bank late Thursday
helped to rekindle memories of the banking sector speculation that
paved the way for the 2008 financial crisis.
"These were egregious mistakes," said chief executive Jamie Dimon,
with the bank saying the losses occurred in synthetic credit
securities, which are derivative investments tied to credit
performance.
The news sent ripples across world bourses, with JPMorgan's stock
plunging more than 6 per cent in late electronic trading on Thursday,
consequently dragging down the shares of the bank's US rivals.
While Japanese banking stocks fell for the third day, Europe's
Euro Stoxx banks index was down 1.6 per cent in early morning
trading.
The JPMorgan trading losses come at a difficult time for the
international banking system as it faces up to risks linked to the
eurozone debt crisis and international economic uncertainty.
"In hindsight, the new strategy was flawed, complex, poorly
reviewed, poorly executed and poorly monitored," Dimon said."We will
solve that."
But he also warned that the losses could grow or shrink during the
current quarter.
The group said that the trading losses meant that the company now
expects a loss of 800 million dollars in its current quarter. It had
originally planned on a profit of 200 million dollars.
"This portfolio has proven to be riskier, more volatile and less
effective as an economic hedge than the firm previously believed,"
JPMorgan said in a quarterly securities filing.
The company went on to say it was "repositioning" its portfolio of
synthetic credit products.
The trading losses came against the backdrop of a divisive debate
in Washington over bank regulation in the wake of the crisis that
engulfed the financial system in 2008.
Critics of the US banks seized on the JPMorgan announcement as
evidence of the need for stepped-up supervision of the financial
sector.
Democrat Senator Carl Levin said the losses were "a powerful
reminder" of the need for strenuous regulation of the banking system.
