Shares of JPMorgan Chase & Co. (JPM) slid 6 percent in after-hours trade Thursday, after a filing with the Securities and Exchange Commission revealed hefty losses in its synthetic credit portfolio.
JPMorgan said that since March 31, 2012, its Chief Investment Office has had hefty mark-to-market losses in its synthetic credit portfolio that has proved to be more riskier than expected.
Accordingly, JPMorgan said it now estimates its Corporate business, within the Corporate/Private Equity segment, to incur a net loss of about $800 million, which excludes Private Equity results and litigation expense.
The company earlier had estimated the Corporate business to report a profit of $200 million. JPMorgan also warned that profit in Corporate division will be more volatile in future periods.
JPMorgan, through its Chief Investment Office (CIO), makes broad bets to hedge portfolios of individual holdings. JPMorgan said it is now repositioning CIO's synthetic credit portfolio.
JPMorgan CEO Jamie Dimon swiftly convened a conference call in which he termed the losses as "egregious" and "self inflicted."
"We will admit, we will learn from it, we will fix it and move on," said Dimon.
CEO Dimon said the estimated $1 billion second-quarter loss stemming from erratic markets is in addition to $2 billion trading losses it took in the last six weeks.
Dimon said the synthetic hedge, using contracts known as credit default swaps, was shoddily executed.
Credit default swap, or CDS, is a kind of counter-party agreement which allows the transfer of third party credit risk from one party to the other. As a result, the risk of default is transferred from the holder of the fixed income security to the seller of the swap.
JPM closed Thursday on the NYSE at $40.74, up $0.10 or 0.25%, on a volume of 35.3 million shares. In after hours, the stock dropped $2.72 or 6.68%. In the past year, the stock has traded in a range $27.85 - $46.49.
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