JP Morgan Chase $2 billion loss roils markets

JP Morgan Chase & Co (JPM) chief executive officer Jamie Dimon said the firm took a hit of $2 billion due to an ''egregious'' failure in a unit managing risks, that dealt a major blow to the Wall Street banks' efforts to loosen a federal ban on bets with their own money.

The positions that the firm's chief investment office took on synthetic credit securities, turned out to be flawed. The securities remained volatile and may involve a further $1 billion hit this quarter or next, Dimon told analysts yesterday. The firm piled on losses even as it tried to mitigate transactions designed to hedge credit exposure.

''There were many errors, sloppiness and bad judgment,'' Dimon said as the company's stock fell in extended trading. ''These were grievous mistakes, they were self-inflicted.''

The chief investment office was engaged in a debate over a ban proprietary trading by the US government when Bloomberg News reported last month that the unit had bet so big  that JPMorgan, the largest and most profitable US bank, could not unwind them without taking massive hits or roiling financial markets.

According to  Bloomberg which cited five unamed former employees, Dimon, 56, had transformed the unit in recent years to make bigger and riskier speculative trades with the bank's money.

Dimon, coming out in defence of the unit, had described it as a ''sophisticated'' guardian of the bank's funds during a conference call on 13 April, going to the extent of calling news coverage ''a complete tempest in a teapot.''