Bank shares suffer on JPMorgan loss

By James Kwak Jonathan Macey, a former professor of mine at Yale Law School,* recently wrote an op-ed for the Wall Street Journal (paywall; excerpts here) arguing that we shouldn’t worry about JPMorgan’s recent trading loss because market forces will ensure that the bank does a better job next time. Here’s a key paragraph:

WASHINGTON — U.S. banks have enough capital to withstand a severe economic downturn, the Federal Reserve said on Thursday, with all but one major bank passing the regulator’s annual health check. All 18 participating lenders except for Ally Financial — government-owned after being rescued during the financial crisis — met the minimum capital hurdle of a 5% capital buffer, in the Fed’s “stress test.” “The nation’s largest bank holding companies … are collectively in a much stronger capital position than before the financial crisis,” the Fed said in a statement.

ChartProphet submit:The JP Morgan (JPM) trading blunder could result in a $100 billion loss, a contagion of its massive portfolio, and even the wipeout of its entire asset base. Even worse, these extremely risky and potentially-illegal actions on behalf of the CIO office and the "London Whale" could be the unexpected "shock" that breaks the market, derails the Fed's huge monetary stimulus, and sends us back into a global recession.

By Martim Macedo:Probably the most difficult business to analyze is a bank. We can look at the numbers but we never know the truth behind them. Are they too optimistic on their impairments? Are they making the right level of write-downs? What's the real risk behind their trading portfolio? Are they assuming the real value of their long-term assets? Many more questions can arise, and in some, it's probable that not even the CFO can give you a precise answer.

By Jake Zamansky: [See Disclosure at bottom.] John Pierpont Morgan must be spinning in his grave.In the wake of revelations about billions of dollars in high-risk trading losses and brokers pushing proprietary mutual funds, the preeminent bank old JP created seems more like an out of control "boiler room" than a venerable institution.

JPMorgan Chase chief Jamie Dimon insisted Wednesday that his bank is solid and that there was no need for rules to block the derivatives trading that dealt it a shock $2 billion loss last month.In the hot seat in the US Senate over accusations that the giant bank was taking excessive risks in "out of control" proprietary trading, Dimon conceded the loss was a bad management error but also a one-off event that did not require any broad regulatory action."We are doing what a bank is supposed to do. We do it every single day," Dimon told the Senate Banking Committee.

Financial shares looks set to suffer after JPMorgan rattled markets with its $2bn loss and raised doubts about the strength of banks’ balance sheets

By Robert Broens: Shares of JP Morgan Chase & Co. (JPM) were hit hard in after hours trading after the "winning bank" of the financial crisis announced a surprise $2 billion trading loss. The Synthetic Credit Loss