Are Bigger Problems Ahead for JPMorgan?

by ETFguide | May 22, 2012 9:30 am

JPMorgan NYSE:JPMJPMorgan Chase (NYSE:JPM[1]) is reeling after its May 10 disclosure of massive trading losses and now the U.S. banking giant has scrapped plans to buy back its own stock.

In a radical about-face, the company’s CEO, Jamie Dimon, said the bank would halt purchases of its own stock. The decision, according to JPM’s handlers, has nothing to do with the bank’s $2 billion loss on busted credit bets. JPMorgan had planned to repurchase $15 billion in shares through the end of the first quarter of 2013.

Dimon described the botched trades at the bank’s annual shareholder meeting as “flawed, complex, poorly conceived, poorly vetted and poorly executed.” Yet, Dimon personally approved the trades, according to reports.

Here are a few more unappetizing details:

Artificially low interest rates have added a new dimension of pressure on banks to make higher returns by taking on higher risks.

JPMorgan Chase is a key component within the Sector Financial SPDR (NYSE:XLF[2]) and the SPDR KBW Bank ETF (NYSE:KBE[3]).

Since the beginning of the year, KBE has climbed 7.32%, while XLF is holding on to a gain of 6.26%.

  1. JPM:
  2. XLF:
  3. KBE:

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