Shares of the major U.S. banks tumbled Friday on news that JPMorgan Chase, the country's largest bank, lost $2 billion in the past six weeks in a trading portfolio that was intended to reduce its financial risks.
Shortly after Friday's opening bell, JPMorgan Chase & Co. shares dropped more than 9 percent, making it the biggest loser among the 30 stocks in the Dow Jones industrial average.
While the losses were particular to JPMorgan, the news boosted fears of increased bank regulation and was enough to spook investors.
Shares of Citigroup Inc. and Goldman Sachs Group Inc. both fell about 4 percent in early trading, while Bank of America Corp. initially dropped about 3 percent before rebounding. Earlier in the day, shares of British banks fell when European markets opened.
But gains in technology, energy and other stocks offset the losses on the broader U.S. market. In midday trading, the Dow was up 34 points at 12,888.
Wall Street analysts said the hefty losses provide fodder for proponents of increased bank regulation including the so-called Volcker rule, which is still being written and is expected to ban certain types of trading by banks with their own money.
The Federal Reserve said last month that it would begin enforcing that rule in July 2014. Bank executives, including JPMorgan's CEO, have argued for weaker rules and broader exemptions.
Baird analyst David George said in a Friday note to investors that it's now less likely that the government will heed those requests. And once the political season gets going, the country's largest banks could also face calls from their critics for them to break up, he said.
But Citi analyst Keith Horowitz said that while JPMorgan's timing couldn't have been worse for the industry, he's still not convinced that the losses will result in stricter Volcker rule than previously expected, since that would severely affect the amount of money in the markets.
The trading loss was an embarrassment for JPMorgan, which came through the 2008 financial crisis in much better health than its peers. It kept clear of risky investments that hurt many other banks.
The loss came in a portfolio of complex financial instruments known as derivatives and in a division of JPMorgan designed to help control its exposure to risk in the financial markets and invest excess money in its corporate treasury.
Partly because of the $2 billion trading loss, JPMorgan said it expects a loss of $800 million this quarter for a segment of its business known as corporate and private equity. It had planned on a profit for the segment of $200 million. The loss is expected to hurt JPMorgan's overall earnings for the second quarter, which ends June 30.
In midday trading, JPMorgan shares dropped $3.01, or 7.4 percent, to $37.73; Citigroup lost $1.03, or 3.4 percent, to $29.62; and Goldman Sachs fell $3.08, or 2.9 percent, to $103.24. Bank of America shares initially fell 29 cents, or 3.8 percent, to $7.41, before climbing back to $7.72, up 3 cents per share.