JPMorgan Discloses $2 Billion in Losses From ‘Flawed’ Hedging Strategy

JPMorgan Chase, the nation’s largest bank, revealed Thursday that it lost $2 billion in a hedging strategy over the past six weeks that could cause future losses.

CEO Jamie Dimon said the ‘flawed’ hedging strategy was “poorly constructed, poorly reviewed, poorly executed, and poorly monitored.”

The bank is expecting to lose $800 million in its corporate segment this quarter instead of previous estimates of $200 million in profit. Some of the losses were offset by $1 billion in previously unrealized gains from the bank’s portfolio.

“The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought,” Dimon said in the call. “There were many errors, sloppiness and bad judgment.”

The company’s shares plunged more than 6 percent in late electronic trading after the loss was announced. Citigroup, Bank of America and other bank stocks also suffered heavy losses.

Dimon declined to comment further than to say the bank suffered losses as a result of a strategy to hedge against global credit risk.

“Hopefully this will not be an issue by the end of the year,” he said.

The losses are a small amount compared to the approximately $200 billion portfolio managed by the company’s chief investment office, where the hedging strategy was executed.


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