On Monday, JPMorgan Chase & Co. (NYSE:JPM) announced that it cancelled its share buy backs while rumors circulated that its trading loss is growing. The figure may now hit $7 billion.
With the suspension, the bank will now buy back $15 billion in its own shares. This can help prop up JPMorgan’s share price, which it needs. On Monday, its shares fell 2.45 percent to a six month-low of $32.67; in the last year, the bank’s value has declined by a quarter, according to The Independent.
Dimon said the decision to cancel the buyback was not associated with fears about rising losses. He said at an investor conference on Monday, “You should not interpret this as anything about the size of the loss.”
In fact, Dimon also said the loss was an “isolated event.” He added that he hopes and even expects that it is “something we don’t have to talk about by the end of the year.”
But how can you not worry?
CNN Money reported late on Sunday that the firm’s trading losses could hit $6 billion to $7 billion after speaking with sources including traders specializing in the derivatives trading used by JPMorgan for the questionable trades.
One unidentified source who supposedly knows the bank’s positions said to CNN Money, “The market knows roughly what [JPMorgan] has and what the sizes are.”
And it is the hedge funds who have taken the other side of the trades that could help the company feel less pain.
But the main index based on the London Whale’s credit default swaps trades has tempered in the last few days, which could mean that JPMorgan Chase & Co. (NYSE:JPM) is slowing its trading out of its positions as opposed to one big hit, commented The Independent. Dimon had initially said the bank would handle the positions to “maximize economic value” but it could be dangerous to think long term as Boris Iksil was trading on corporate America’s credit-worthiness.
Should that drop, JP Morgan’s losses could rise.
Other news emerging is that Ina Drew, the former head of the chief investment office (CIO) who bailed on the bank just four days after the losses had been disclosed, was gone from the office for long periods of time in 2010 due to Lyme disease.
While she was gone, JP Morgan traders participated in “shouting matches” with Drew’s New York and London subordinates. One trader said to The New York Times, “The strife distracted everyone because no one could push back.”
Drew had been perceived as the top executive next to Dimon who maneuvered JP Morgan through the 2008-9 financial crisis. But in the last few years, she became less involved.
Matt Zames is now at the helm at CIO and on Monday, Dimon gave him a vote of confidence to undo the trades. Zames brings experience to the position as a former trader with Long-Term Capital Management. Remember? It’s the hedge fund that failed after making large bets on interest rates; in 1998, the Federal Reserve had to bail them out for $3.6 billion.