JPMorgan Chase Says CIO Unit Suffered ‘Significant’ Loss

This loss will guarantee at least a two notch drop in their credit rating. Expect the markets to factor in a financial event shortly in Asia and then in Europe.

David DeGerolamo

From Bloomberg:

JPMorgan Chase & Co. (JPM) said it lost about $2 billion tied to synthetic credit securities after positions taken by its chief investment office were riskier than expected.
“This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed,” the New York-based company said today in a quarterly securities filing. JPMorgan declined 5.5 percent to $38.50 in extended trading at 4:51 p.m. in New York.

JPMorgan’s chief investment office has been transformed in recent years under Chief Executive Officer Jamie Dimon into a unit that makes bigger and riskier speculative bets with the bank’s money, five former employees of the bank said earlier this year. Some of the bets were so big that the bank probably couldn’t unwind them without losing money or roiling financial markets, the former executives said.

Dimon said last month that the bank is “very conservative” in investing the firm’s excess cash.

JPMorgan said today it’s “repositioning” the synthetic credit portfolio, and that the CIO ‘‘may hold certain of its current synthetic credit positions for the longer term.’’

Losses in CIO’s synthetic credit portfolio have been partially offset by gains from sales, mostly of credit-related positions, in the ‘‘AFS securities portfolio,’’ according to the filing. As of March 31, 2012, the value of CIO’s total AFS securities portfolio exceeded its cost by approximately $8 billion.



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