Log in
Login
Password
Remember
Lost password
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 

4-Traders Homepage  >  Shares  >  Nyse  >  Morgan Stanley    MS

SummaryQuotesChartsNewsAnalysisCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsSector news 

J.P. Morgan Leads Bank Shares Lower After $2 Billion Loss Disclosure

05/11/2012 | 09:23am US/Eastern

-- Bank shares drop ahead of U.S. market open on J.P. Morgan loss disclosure

-- JPM leads banks lower, falling 8.3%, while others are down by about 2%-4%

-- Most analysts still stand behind bank

 
   By Christian Berthelsen 
   Of  
 

Stocks of the major U.S. banking companies fell sharply in premarket U.S. trading Friday, led lower by J.P. Morgan Chase & Co. after the bank revealed a $2 billion trading loss in a previously little-known corner of the bank's vast operations.

J.P. Morgan shares were down about 8% ahead of the U.S. market open, and stocks of other major banking companies were down by a range of 2% to nearly 4%, exceeding moves lower in the major stock index futures.

Citigroup was off 3.8%, Goldman Sachs was down 2.7%, Bank of America was down 2.5%, Morgan Stanley was 2.1% lower and Wells Fargo was down 1.8%.

J.P. Morgan's loss--detailed in a hastily arranged conference call late Thursday--stemmed from a large hedge position that was essentially bullish on the economy, by selling credit default swaps on an index of corporate debt.

The cost of the swaps began to rise last month, and the bank began to unwind the position at a loss.

The trade was put on by J.P. Morgan's Chief Investment Office, a unit which invests the bank's surplus assets. Such offices are common at big banks, though most say they invest in low-volatility, low-risk vehicles such as Treasuries to protect against interest rate and inflation risk.

Still, J.P. Morgan says it will be profitable in the second quarter despite the loss, after recording $5.2 billion in net income in the first quarter and $19 billion in 2011. The bank has $184 billion in shareholder equity.

Analysts remained behind the bank, however, with many leaving their ratings on J.P. Morgan stock unchanged. Still, many noted the debacle is likely to play in to the hands of regulators and banking industry critics calling for tougher oversight and more limitations on risk, which could impede a source of revenue and profits for the major banks in the future.

"The timing of JPM's announcement is unfortunate given the growing market concerns about risk exposures of all major U.S. banks, and the unfinished nature of the Volcker Rule, and is likely to result in weak performance for all [large bank] stocks in the near term," Wells Fargo said in a note.

Evercore Partners re-affirmed its 'buy' rating on the stock, but added: "Implications could be significant depending on how much such CDS had been helping to bolster results previously, lingering losses, and perhaps most importantly, how regulators view this for JPM and the industry overall given [the] pending Volker rule" that would scale back proprietary trading.

-By Christian Berthelsen, Dow Jones Newswires; 212-416-2381; christian.berthelsen@dowjones.com.

React to this article
Latest news on MORGAN STANLEY
09/04 Canada's Emera to buy Teco Energy for $6.44 billion to expand in U.S.
09/04DJRetail Chain At Home Group Files for IPO
09/04DJIndustrial Data Likely to Boost Eurozone Prospects
09/04 Datang Environment Industry May Raise up to USD800 Million in IPO
09/04DJJACK MA : Alibaba's Jack Ma, Joe Tsai to Borrow $2 Billion Against Shares
09/04DJJapanese Banks Eye GE's Local Commercial Finance Operations
09/03 MORGAN STANLEY : Eric Heaton to Speak at the Barclays Global Financial Services ..
09/03 Gun maker Colt says near deal to exit bankruptcy
09/03 MORGAN STANLEY : Scales down fy16 growth outlook to 7.5% from 7.9%
09/03 MORGAN STANLEY : Asking price for Penguins franchise said to be at a record $750..
Advertisement
Chart
Duration : Period :
Morgan Stanley Technical Analysis Chart | MS | US6174464486 | 4-Traders
Income Statement Evolution
More Financials