JP Morgan CEO Jamie Dimon dubs losses 'egregious,' but market analysts expect that, this time, the damage would be contained and not spread to the entire financial system.
The financial markets are holding up better than expected on Friday in the wake of JP Morgan Chase’s disclosure that it had a massive trade go bad, which would result in a loss of as much as $2 billion.
The disclosure, made by JP Morgan’s CEO, James Dimon – who termed the losses “egregious”– after the close on Thursday, brought back memories of bank bailouts and the 2008 financial crisis that led to the steepest post-war recession. This time, however, market analysts said they believed the damage would be contained and would not spread to the entire financial system. The widely watched Dow Jones Industrial Average was off only about 50 points after 30 minutes of trading but JP Morgan stock was off about 9 percent.
“The embarrassment factor is more significant than the economic factor,” says Fred Dickson, market strategist at D.A. Davidson & Co. in Lake Oswego, Ore. “The landscape is different than 2008 when all the global banks were massively overleveraged and under reserved.”
Four years ago as the housing market collapsed, the investment bank Lehman Brothers failed, which resulted in a cascading economic crisis. Mr. Dickson says few people realized the importance of Lehman in funding corporate America. By contrast, he says, the JP Morgan trading losses are self-contained to a trading department.
“This is not the blowup of an entire product that affects the entire economic system,” he explains. “The loss is not systemic.”