Banking giant JP Morgan Chase has revealed that its estimate for losses from the trading scandal involving the selling of complex derivates has tripled to $5.8 billion.
The disclosure has angered some investors who feel they were not told the full truth of the matter at the earliest time. The new estimate means that its first-quarter earnings needed restating after fears that traders covered up losses in that period.
The bank says that it has managed to get millions of dollars of bonus payments back from traders who caused the losses. However, it also said that it expects a further $1.7 billion of losses to emerge from the same derivatives scandal, taking the expected total liability to $7.5 billion.
The scandal first emerged in March when it was estimated that trading losses of $2 billion were suffered by JP Morgan, caused by London-based JP Morgan trader called Bruno Michel Iksil who was dubbed “Voldemort” who made large bets on financial markets as part of his hedging strategy.
At the time, JP Morgan Chase's chief executive Jamie Dimon said that he was wrong to ignore concerns over the bank’s trading practices. This led to a nine per cent fall in the bank’s share price in May.
However, despite the news that the trading scandal cost the bank three times more than originally estimated, shares in the bank increased by 5.8 per cent after JP Morgan Chase unveiled a $4.96 billion net profit for the 2nd quarter.
This is down 8.7 per cent on the same period in 2011, but still much higher than most analysts expectations.
Mr Dimon was in a conciliatory mood yesterday as he announced the results and the revised losses expected from the derivatives scandal.
“We shot ourselves in the foot. I can tell you that this has shaken our company to the core,” he said.
"I think it's silly for anyone in the business world to think you're not going to make mistakes.
"It is not possible in the real world. I just think the mistakes should be smaller, fewer and far between, this being an exception," he added.
He said that the bank has closed the trading division responsible for the losses and moved the rest of the open trades to its investment bank.
US pension funds, major investors in the bank, are preparing lawsuits against JP Morgan Chase as they believe they were given “false and misleading information” about the risks the bank was taking in its trading activities.
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