JP Morgan's white whale harpooned by $2bn trading loss

JP Morgan has reported a shock $2 billion trading loss for the first quarter related to positions placed by controversial London-based trader Bruno Iksil, also known to his detractors as the white whale.

The trades relate to positions in credit derivatives taken by the bank’s chief investment office, which is intended to hedge excess cash deposits. JP Morgan shares fell an immediate 6% on the news.

JP Morgan also admitted that its value at risk measurements related to Iksil’s team in the first quarter had been dramatically revised, from a previous $67 million to $129 million.

The positions have generated controversy because critics say the office, which has reportedly earned around $100 million a year for the bank in recent years, go beyond routine hedging into proprietary trading forbidden under the US Volcker rule’s separation of banking functions.

Rival traders and hedge funds have also claimed that the positions are large enough to potentially distort the credit derivatives market.

In a hastily arranged call to investors and analysts after the US markets had closed JP Morgan chief executive Jamie Dimon blamed the losses on ‘errors, sloppiness and bad judgement and warned they ‘could get worse’.

‘These were grievous mistakes, they were self-inflicted, we were accountable and we happened to violate our own standards and principles by how we operate the company,’ he added.

‘This is not how we want to run business. We will admit it, we will learn from it, and we will move on’

The losses were attributed to trading positions taken within the last six weeks. Public attention was focused on Iksil in early April, when both the Wall Street Journal and Bloomberg produced stories on rival traders' and hedge funds' criticism of the office.

Dimon admitted that he should have watched ‘trading losses – and newspapers’ much more closely, and it seems possible, if not likely, that the widespread publicity provided to Iksil’s positions was at least partially responsible for the market moving aggressively against him.