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Extended trade: JPMorgan hit with credit downgrade

JPMorgan Chase's offices in San Francisco

Paul Sakuma

JPMorgan Chase & Co. shares came under further sellling pressure in extended trading Friday after Fitch Ratings cut its credit grade by one notch in response to the surprise $2-billion (U.S.) trading loss. Later in the evening, Standard & Poor's lowered its ratings outlook on the U.S. bank to negative from stable, but kept its existing ratings intact for now.

Fitch lowered the lender's long-term issuer default rating to A+ from AA-, and the short-term grade to F1 from F1+. Fitch also placed all parent and subsidiary long-term ratings on rating watch negative.

Fitch said it views the size of the loss as manageable. "That said, the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity. It also raises questions regarding JPM's risk appetite, risk management framework, practices and oversight," all of which are key credit factors, it said.

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Shares at last check were down 0.7 per cent in the post market. During the regular session, JPMorgan shares sank $3.78, or 9.3 per cent, to $36.96.

Intense selling in shares of Chesapeake Energy Corp. abated in the post market after the stock plunged in the final hour of regular trading, as the struggling natural gas producer disclosed it may delay some of its asset sales. Chesapeake tied the announcement to its desire not to jeopardize terms of its loans to creditors. While asset sales generate cash, they also decrease the cash flow generated by the company. Shares were up 0.3 per cent in the post market after dropping 13.8 per cent, or $2.37, to $14.81 in the regular session.

Lookahead to next week

It's shaping up to be a jam-packed week, with a lot for investors to digest.

European finance ministers meet Monday and Tuesday amid the debt crisis and the many questions surrounding Greece.

This will be followed Tuesday by a look at how the economies of the euro zone fared in the first quarter of the year. The 17-member monetary union is believed to be in the midst of a mild recession, and Tuesday's report could confirm that.

RBC Dominion Securities projects the data will show that gross domestic product contracted by 0.2 per cent, quarter over quarter, which would mean the currency union meet the technical definition of a new recession.

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Also on Tuesday, the U.S. releases its inflation and retail sales reports, both potential market movers. Canada also releases its inflation numbers that day. That's followed by the latest U.S. housing starts and U.S. industrial production data on Wednesday, as well as the FOMC Minutes from the Fed's last meeting on April 25.

On the corporate front, the fight for control of Canadian Pacific Railway Ltd. comes to a head on Thursday, at a shareholder meeting in Calgary. Activist investor Bill Ackman of Pershing Square Capital Management, now the railway's biggest shareholder, has been waging a fight, proposing a dissident slate of seven directors, and wants to replace chief executive officer Fred Green with Hunter Harrison, the former CEO of rival Canadian National.

Anything can happen, of course, but Mr. Ackman has been winning support for his team.

Several major companies are also scheduled to release quarterly results, including Onex Corp., Home Depot Inc., Power Corp. of Canada, Deere & Co., Sears Canada Inc., Target Corp., Gap Inc. and Wal-Mart Stores Inc.

Also see This Week with Michael Babad

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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