JPMorgan counts the $4.4bn cost of trades

JPMorgan Chase & Co, the largest bank in the United States, yesterday reported a US$4.4 billion (Dh16.1bn) loss from its "London Whale" trades.

It admitted that some traders had tried to hide bad credit bets in the first quarter of this year, forcing it to restate its first-quarter earnings.

The trading loss, about $2.4bn more than was previously estimated and caused by the lender's London-based chief investment office, helped to drive second-quarter profit down by 9 per cent. Net income fell to $4.96bn from $5.43bn during the same period a year earlier, the New York-based company said.

Although JPMorgan said it had cleaned up its chief investment office and emphasised that the problems were isolated to this unit, analysts said the trading debacle was yet another blow to the integrity of the beleaguered banking industry.

"History is littered with financial scandals and we are still feeling the effects of the global banking crisis that saw the collapse of Bear Sterns, Lehman Brothers and Northern Rock to name but a few," said Dan Dowding, the chief executive of IFAs Killik & Co in Dubai.

"The recent scandals of Libor fixing and trading losses are doing nothing to help the investment banking industry's cause.

"Tighter regulation of derivative markets, higher levels of transparency and a review of the bonus system will help but, given that the global economic crisis that we are navigating our way out of was in part caused by many of the investment banks, it is going to take a long time for sentiment to improve."

The trading loss may complicate efforts by Jamie Dimon, the chief executive of JPMorgan, to restore investor confidence after the company lost $39.7bn in market value since April 5, when it was first reported that it had amassed an illiquid book of credit derivatives at its London unit. The firm is also being probed over the possible gaming of US energy markets and was subpoenaed in the investigation of interest-rate fixing in London.

"The restatement is not good and at first glance, the numbers are so-so," said Paul Miller, a former examiner for the Philadelphia Federal Reserve Bank and an analyst at FBR Capital Markets.

In a departure from his customary earnings-day conference call, Mr Dimon yesterday met with analysts in person for two hours at the bank's New York headquarters to field questions about the loss and what he is doing to contain the damage.

Mr Dowding said JPMorgan could move on from the scandal with an eventual full disclosure of its losses. In early trade in New York yesterday, JPMorgan shares were up 3.85 per cent at $35.35.

* With additional reporting by Bloomberg News