JPMorgan Whale Loss Leads U.S. Bank Revenue Lower, OCC Says

The trading loss at JPMorgan Chase & Co. helped cut revenue from cash and derivative positions at U.S. commercial banks by 73 percent, compared with a year ago, the Office of the Comptroller of the Currency said.

“While both normal seasonal weakness and reduced client demand played a role, it was clearly the highly publicized losses at JPMorgan Chase that caused the sharp drop in trading revenues,” Martin Pfinsgraff, deputy comptroller for credit and market risk, said today in a statement. Commercial banks had $2 billion in trading revenue for the second quarter, the Washington-based regulator said.

The agency said its main measure of credit risk in derivatives markets, the so-called net current credit exposure, rose 9 percent, or $32 billion, to $410 billion.

JPMorgan, based in New York, lost $5.8 billion on credit-default swaps trades in the first six months of the year. About $3.7 billion of that came in the second quarter, according to Pfinsgraff, which caused the bank to post a $420 million trading loss.

The biggest U.S. bank by assets is facing regulatory scrutiny and criminal probes over losses in the Chief Investment Office, which Chief Executive Officer Jamie Dimon pushed in recent years to make bigger and riskier bets with the bank’s money. The loss, which Dimon said stemmed from positions that were “poorly monitored,” prompted calls from Congress for tighter bank regulation and triggered criminal investigations by the U.S. Department of Justice and Federal Bureau of Investigation.

The trades in question, made by a CIO group that included Bruno Iksil, nicknamed the London Whale because his positions grew so large, were on portions of credit-swap indexes, people familiar with the transactions have said. Tranches allow investors to wager on varying degrees of risk among a pool of companies. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

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