Bank stocks hurt after JP Morgan $2B loss

WASHINGTON -- JPMorgan Chase stock lost more than 8 percent of its value Friday after the bank, the largest in the United States, revealed a monster $2 billion loss in a trading group that manages the risks the bank takes with its own money.

More than three years after the financial crisis, the surprise disclosure quickly revived debate about whether banks can be trusted to handle risk on their own.

Sen. Carl Levin, D-Mich., chair of a subcommittee that investigated the crisis, said the loss was "just the latest evidence that what banks call `hedges' are often risky bets that so-called `too big to fail' banks have no business making."

The head of the Securities and Exchange Commission, Mary Schapiro, told reporters that the agency was focused on the JPMorgan loss but declined to comment further.

Some analysts were skeptical that the trading was designed to protect against JPMorgan's own losses, as chief executive Jamie Dimon contended Thursday in a conference call with stock analysts and reporters.

The analysts said the bank appeared to have been betting for its own benefit, a practice known as "proprietary trading."

Dimon said the type of trading that led to the $2 billion loss would not be banned by 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 Dimon, have argued for weaker rules and broader exemptions.

JPMorgan has been a strong critic of provisions that would have made this loss less likely, said Michael Greenberger, former enforcement director of the Commodity Futures Trading Commission, which regulates some derivatives.

"These instruments are not regularly and efficiently priced, and a company can wake up one day, as AIG did in 2008, and find out they're in a terrific hole. It can just blow up overnight," said Greenberger, a professor at the University of Maryland.

On Friday, bank stocks were hammered in Britain and the United States, partly because of fear that the JPMorgan loss would lead to tougher regulation of financial institutions.

JPMorgan stock was down 8.2 percent in early trading on Wall Street. It was down more than $3, and by itself shaved 25 points off the Dow Jones industrial average, which was up about 30 points on the day.

In Britain, shares of Barclays and Royal Bank of Scotland were down more than 2 percent.

JPMorgan stock was the hardest hit, but its American counterparts suffered, too: Morgan Stanley was down 4 percent, and Goldman Sachs and Citigroup each lost more than 3 percent.

Stock analysts said that bank stocks were hurt mostly because of regulatory fear, not because there was reason to believe other banks would discover similar losses.