Jamie Dimon's worst fears for the scale of losses on the "London Whale" derivatives disaster could be coming true in double-quick time.
The JPMorgan Chase chief executive disclosed last week that the bank had lost $2bn (£1.2bn) on a complex bet in the credit markets and that the figure could escalate as it unwinds the disastrous trades.
The paper loss on the trade now sits at $3bn, according to reports yesterday, because rival speculators have taken opposing positions in an attempt to profit from JPMorgan's distress. The reports sent the bank's shares down another 3 per cent before lunch. They fell 9 per cent on a single day when the debacle first came to light.
Mr Dimon said the ultimate losses could be $3bn or more, but this will only be certain when the trade is fully unwound. In the meantime, the loss on paper will swing wildly depending on speculative activity in what is an obscure and thinly traded corner of the credit markets.
One of the biggest problems is an index called the Markit CDX NA IG Series 9 maturing in 2017, which reflects the value of a portfolio of credit default swaps, contracts tied to the credit quality of 121 North American investment-grade bond issuers including Kraft Foods and Wal-Mart Stores.
Bruno Iksal, the JPMorgan trader known as the London Whale for the size of the market positions he was taking, had bet heavily that the index would go up in value. Now investors are piling in with negative bets that are pushing it down.
Rival investors and banking analysts alike have struggled to piece together the complicated trading strategy from Mr Dimon's public comments. "I've been through this exercise a few times, and I can't make the numbers make sense," Michael Johnson, the chief market strategist at MS Howells, said.
Even if the current $3bn loss was to be crystallised, JPMorgan is still expected to be profitable overall in the second quarter.Reuse content