Skip to Content
Market Update

Bad Trades Rattle J.P. Morgan

The surprise announcement of 'flawed, complex, and poorly reviewed' bets that led to $2 billion in losses has caused shares to spiral downward.

 J.P. Morgan Chase (JPM) announced Thursday in a last-minute conference call that it had taken $2 billion in losses from credit derivative trades out of its chief investment office. J.P. Morgan now estimates that the unit will lose $800 million in the quarter, as opposed to $200 million it had previously estimated, as gains offset some of the losses. 

CEO Jamie Dimon called the trades "flawed, complex, poorly reviewed." J.P. Morgan also announced that its "value-at-risk" model was inadequate and that it would be going back to an older model. J.P. Morgan said that it could face another $1 billion in losses in the second quarter due to market volatility. While the announcement on its surface is shocking, especially considering J.P. Morgan's stellar reputation when it comes to risk controls, we do not anticipate the losses will be material to J.P. Morgan's long term fair value. We are, however, monitoring the situation closely for signs that this could be an early indication of larger problems at the bank.

Morningstar Premium Members gain exclusive access to our full J.P. Morgan 
 Analyst Report, including fair value estimate, consider buy/sell prices, bull and bear breakdowns, and risk analysis. Not a Premium member? Get these reports immediately when you try Morningstar Premium free for 14 days.

Erin Davis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.