As expected, shares of banks in the US dove Friday after JPMorgan Chase & Co. (NYSE:JPM) reported a $2 billion trading loss which may give way for regulation on these institutions. The reason why this is a huge deal besides losing $2 billion is that JPMorgan Chase & Co. (NYSE:JPM) was considered to be the strongest bank in the US. After this loss, traders are now fearful that if JP Morgan got hit, all the rest could go through a similar phenomenon.
Interestingly enough, JPMorgan CEO Jamie Dimon has long been against excessive risk taking and calls this gaff by the firm’s risk division, chief investment office, as a “tempest in a teapot”.
Here is an updated view of bank shares in the US: JPMorgan Chase & Co. (NYSE:JPM) is currently at $37.40 down 8.22%, Bank of America Corp (NYSE:BAC) down only 0.65% to $7.65, Citigroup Inc. (NYSE:C) is down 3.33% to $29.63, Wells Fargo & Company (NYSE:WFC) is up .15% to $33.24, Morgan Stanley (NYSE:MS) is down 4.29% to $14.93 and Goldman Sachs Group, Inc. (NYSE:GS) is down 3.13% to $102.99.
As you can see the beating are not equal and it is interesting that Wells Fargo is in positive territory for the day. Banks cut some of their losses after the market got some relief when consumer sentiment unexpectedly rose above predictions.
As stated earlier, this could give activists and government leaders the firepower and support to implement new restrictions on risk taking and “machine trading”. “Machine trading” is often blamed for the high market volatility and not giving retail investors a fair shot.
Personally, the machines do need to be regulated and ultimately controlled because we have seen the potential of these automated machines that trade vast amounts of shares in a blink of an eye. I am referring to the “Flash Crash” which recently just saw its second anniversary back earlier this month. Yet, there has been no change since then. The ‘rise of the machine’ continues to be a major problem and no doubt will contribute a crash to use again.
The bottom line is that JPMorgan’s unfortunate $2 billion mishap shows that banks are not watching their risk properly and we could see lawmakers move on this to prevent huge amounts of risk taking that we saw in 2008. Unfortunately, this will put further pressure on the banks in a time that they are very vulnerable.