J.P. Morgan's Growing Loss Weighs on Banks

J.P. Morgan Chase & Co. (NYSE: JPM) is weak this morning on word that the bank’s trading losses will be much wider than originally reported.  The market knew that the loss would be at least $2 billion, but for the trades to unwind the bank’s ultimate loss is one which we will not fully know until the bank’s earnings report in July.  Even then, the full loss may not be known.

The New York Times has a scathing report showing that the trading loss may total as much as $9 billion.  Other news outlets are calling it $9 billion in a headline “one-upping effort” and that may be skewing the news. We were expecting the loss to widen further from the $2 billion, maybe to as much as $4 billion or even $5 billion.  But up to $9 billion?

This trading loss, and the image blow to star CEO Jamie Dimon, helped strip J.P. Morgan Chase of the safest bank status by our count.  The safest of the money center banks is now Wells Fargo & Co. (NYSE: WFC) by our count, and problem banks Bank of America Corporation (NYSE: BAC) and Citigroup, Inc. (NYSE: C) were not even eligible to be on th safest banks list even though their chance of failure seems out of the question today.

Read Also: The 7 Safest Banks in America

Shares of J.P. Morgan Chase were down as much as 6% in Frankfurt trading earlier but the shares are down ‘only’ 2.6% at $35.81 in the pre-market with about two hours until the market opens.  In pre-market trading we are seeing the following reactions: Wells Fargo is indicated lower but not even by 1%, BofA shares are down 1.1% at $7.68, and Citigroup shares are down 1.2% at $26.77.

We would make an observation that this $9 billion noted in the headline was assuming the worst case scenario and it may be overly aggressive reporting.  Still, what if it is even half-right?

JON C. OGG