JP Morgan’s press release highlighted unexpected losses in its CIO division. As per the headlines on Bloomberg, JPM will post an $800 million loss in its corporate division in Q2 on write-downs from synthetic credit derivatives held in its CIO division. JPM also says that it expects $4.2 billion in ‘extra legal losses beyond reserves.’ JPM went on to say that it will need $971 million of extra collateral in the event of a one-notch downgrade and will need $1.7 billion in extra collateral in the event of a two-notch downgrade.
During the conference call Jamie Dimon indicated that this was a ‘mark-t0-market’ loss, which he blamed on ‘hedging.’ It’s not understood by this writer precisely how this could be a loss attributable to hedging, considering that the practice of hedging is to offset risk, in which case, a loss on one side of the position would result in a gain in the other side. Perhaps Dimon doesn’t understand hedging….or perhaps he’s just full of crap.
Regardless, the market isn’t taking this loss as trivial and Dimon’s revelation seems to be effecting more than just JPMorgan’s stock price, which is down more than 5%. As of this writing, the S & P futures are down over 10 points, the Dow futures down more than 80 points.