JPMorgan Revises Market Risk Gauge to Show Trading Losses

JPMorgan Chase & Co. (JPM), the biggest U.S. bank, revised its gauge of market gains and losses to incorporate new regulatory requirements, resulting in a jump in the frequency of losses last year.

Under the new method, JPMorgan posted gains on 177 of the 260 trading days in 2013 and twice exceeded its estimated value-at-risk, according to the New York-based firm’s annual filing with the Securities and Exchange Commission today. With the old measurement, the bank had zero days of trading losses and never surpassed its VaR target, the firm said.

Value at risk is one measure that banks use to gauge how much traders could lose in a single day. JPMorgan disclosed in June 2012 that a miscalculation in VaR was one reason the firm failed to prevent a London-based trader from losing more than $6.2 billion that year. The “London Whale” episode led to criminal charges against two of the trader’s former colleagues, management changes and more scrutiny from regulators.

JPMorgan’s new formula calculates gains and losses by excluding fees, commissions, fair-value adjustments, net interest income and intraday trading fluctuations, the firm said. That’s consistent with what regulators use under international standards known as Basel 2.5, the company said.

Photographer: Peter Foley/Bloomberg

Pedestrians walk outside JPMorgan Chase & Co. offices in New York. Close

Pedestrians walk outside JPMorgan Chase & Co. offices in New York.

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Photographer: Peter Foley/Bloomberg

Pedestrians walk outside JPMorgan Chase & Co. offices in New York.

The previous method included the change in the value of the firm’s principal transaction revenue, trading-related net interest income, and revenue from hedges.

JPMorgan’s corporate and investment bank, run by Mike Cavanagh and Daniel Pinto, earned $15.5 billion from fixed-income trading and $4.76 billion from equities last year, up a combined 2 percent from 2012.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: Rick Green at rgreen18@bloomberg.net

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