NEW YORK: JP Morgan Chase saw around $11 billion wiped of its market value Friday as investors punished the biggest US bank for massive trading losses.
JP Morgan, which had withstood the 2008 financial crisis, disclosed a $2 billion derivatives trading loss after the markets closed Thursday, warning it could face another $1 billion in losses in the second quarter due to market volatility.
JP Morgan shares plunged 7.4 percent to $37.72 by 1545 GMT.
"It's a disgrace," thundered Gregori Volokhine, a financial strategist at Meeschaert. "The banks continue to take risks that they don't manage."
"A trading loss can happen -- the problem is that chief executive Jamie Dimon and his bank are considered the best risk manager," Volokhine said.
He said the issue of the risky big trading bets "was totally known by JP Morgan management -- even by Dimon -- for a long time."
"It's worrying that this wasn't an accident: the breakdown came in the surveillance system... the mistake goes high up," he said.
While analysts said that JP Morgan has the resources to absorb the losses -- the Wall Street bank estimates it will take in $4 billion in profit for the current quarter -- they point to its blow to confidence on Wall Street.
With President Barack Obama's administration pushing the so-called "Volcker Rule," which would forbid banks from much of the trading of their own portfolios, "the timing could not have been worse," said big US bank Citigroup.
"It's clear now it's necessary to separate a firm's trading with its own assets, because there's the impression that banks are acting as if nothing has changed" since 2008, Volokhine said.
JP Morgan's shock losses "will likely impact all capital market-sensitive stocks due to increased concerns of a more restrictive Volcker rule," Citigroup said, warning that "it would severely impact liquidity in the markets."
Douglas McIntyre at 24/7WallSt.com warned against "the temptation... to look at the JP Morgan disaster as an isolated incident, just one set of decisions that went awry.
"Actually, it will be the trigger for a level of governance that may prevent a repeat of a similar incident, at least until the situation fades from memory. Then the risk of a similar problem will return."
Copyright AFP (Agence France-Presse), 2012
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