Up until now, Jamie Dimon has said the $2-billion (U.S.) trading loss JPMorgan Chase & Co. revealed last week was an embarrassment to the bank, but not a lethal blow to its operations. It was important, Mr. Dimon urged investors and analysts, to maintain perspective – even in the face of an "egregious" mistake.
But amid new revelations Friday that JPMorgan's losses from a botched hedging strategy may reach as high as $5-billion by the time the dust settles, Mr. Dimon, the bank's outspoken chief executive officer, will no longer be able to play down the loss.
Though $2-billion is a sizable sum to lose, Mr. Dimon told NBC's Meet the Press on Sunday that the number required a dose of context. Sure it was painful, but the bank could withstand the blow.
"It's a question of size," Mr. Dimon said. "This is not a risk which is life-threatening to JPMorgan. This is a stupid thing that we should never have done. But we're still going to earn a lot of money this quarter."
Such a statement may not have played well on Main Street. But in Wall Street terms, $2-billion was only about half of the profit JPMorgan is expected to make in the second quarter. On average, analysts are expecting the largest bank in the U.S. to earn about $3.9-billion. During the same quarter last year, JPMorgan made $5.4-billion.
But with new revelations from the Wall Street Journal on Friday that the losses could grow to $5-billion as the bank's hedging problems compound, Mr. Dimon is no longer faced with merely losing a portion of one quarter's earnings. He's now staring down the reality of losing an entire quarter.
So while Mr. Dimon has been asking investors to pause and consider the bigger picture, the view now unfolding for investors is a lot tougher to accept. Part of the problem for JPMorgan, which lost the $2-billion on a $100-billion bet it made in the market nearly two months ago, is that unwinding the trades is proving increasingly hard.
Hedge funds know JPMorgan must sell off its massive derivative position relating to the botched strategy, and because the bank is exposed, it's not finding a welcoming market for the synthetic credit products it needs to unload. So on top of the losses JP has already suffered, Mr. Dimon's bank is taking additional losses on the subsequent trades it must make in order to unwind the problem position and contain the damage.
Still, even at a tough-to-swallow $5-billion of losses, Mr. Dimon's original point remains true: The blow won't cripple the bank. JPMorgan made a $19-billion profit in 2011. A loss of $5-billion will chew a giant hole in the bank's earnings this year, but it won't drive JPMorgan to a loss.
"It isn't like the company is jeopardized," Mr. Dimon told Meet the Press. "We hurt ourselves and our credibility, yes. And that we've got to fully expect, and pay a price for that."
For now, JPMorgan is paying the price in the stock market. The bank's shares have plunged 18 per cent since it revealed the trading blunder, dropping to $33.49 from $40.74.