Are Bigger Problems Ahead for JPMorgan?

JPMorgan NYSE:JPMJPMorgan Chase (NYSE:JPM) 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:

  • JPMorgan’s trading losses on derivatives could be much higher. The final tally could jump to around $5 billion, according to a Wall Street Journal report;
  • JPM’s stock has sunk around 20% since disclosing its trading losses meaning the buy backs it did at $36 per share in 2011 are now unrealized losses.
  • The Johnny come lately Federal Reserve Bank of New York said it will examine how banks within its district are allocating and managing their cash;
  • Both the U.S. Justice Department and FBI have opened up a criminal probe of JPM’s trading losses.

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) and the SPDR KBW Bank ETF (NYSE:KBE).

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

Article printed from InvestorPlace Media,

©2022 InvestorPlace Media, LLC