“London Whale” loses JP Morgan at least $2 billion

JP Morgan Chase shares were last night down some 7% at $38 in after hours trading after a rather uncomfortable conference call between Jamie Dimon and analysts declaring a completely unexpected $2 billion trading losses in synthetic investment vehicles. The culprit was part of the Banks so called proprietary trading desk.

The losses were caused by a trader called Bruno Michel Iksil, nicknamed “the London whale” betting on trades tied to the values of corporate bonds.

The “London whale” was a heavy seller of credit default swap (CDS) contracts linked to a basket of companies. J.P. Morgan’s investment bank’s “value-at-risk,” a measure of how much money it stands to lose on a given day, nearly doubled in the first quarter of 2012, rising to an average of $170 million from $88 million a year earlier.

Dimon described the trades as “flawed, complex, poorly reviewed, poorly executed and poorly monitored, “knocking back the profits for the quarter from an estimated $6 billion to $ 4billion. With reports that the current loss is actually $2.3 billion, having been curtailed by around $1 billion in gains on sales of other assets but further market volatility could add an additional $1 billion this quarter.”

Hedge funds were making bets in April for insurance-like products called credit-default swaps, or CDS, to try to take advantage Iksil’s trades whose title of Chief Investment Officer is perhaps under review!

Contrarian Investor UK