UK bank shares fall after JPMorgan loss disclosed

AP News
Posted: May 11, 2012 6:05 AM
UK bank shares fall after JPMorgan loss disclosed

Shares in major British banks fell Friday in the first day of trading after JPMorgan Chase revealed a loss of $2 billion in six weeks in trading on derivatives by its London operation.

Barclays, which has a large investment banking arm, was the biggest loser in London trading Friday morning, down 2.9 percent at 202.7 pence in midmorning trading.

Royal Bank of Scotland fell 2.2 percent, while Lloyds Banking Group was down 1.8 percent and HSBC dipped 1.3 percent.

Ian Gordon, analyst at Investec Securities, said the share movement may be based on a fear that Morgan's difficulty will lead to tougher regulations on banking.

"Based on the limited information available, it's attributed to egregious error within JP Morgan, so there is no reason to read across that specific loss to any other bank," Gordon said.

Jordan Lambert, a trader at Spreadex in London, said the market reaction was understandable.

"When such shocks occur, it is wise to err on the side of caution and consider whether it is a possible tip of the iceberg scenario, especially when one contemplates the interconnectedness of the banking system," he said.

JPMorgan Chase, the largest bank in the United States, said it lost $2 billion in the past six weeks in a trading portfolio designed to hedge against risks the company takes with its own money.

"The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought," CEO Jamie Dimon told reporters. "There were many errors, sloppiness and bad judgment."

The Wall Street Journal and Bloomberg News reported in April that other investors were reacting to massive positions taken by a London trader identified as Bruno Michel Iksil, who worked in the Morgan's risk management arm, the Chief Investment Office.

At the time, Dimon dismissed concerns as "a complete tempest in a teapot."