Standard & Poor's said late Friday that it lowered its ratings outlook on J.P. Morgan Chase & Co. (JPM) to negative from stable on unexpected $2 billion loss on derivatives. S&P affirmed'A/A-1' issuer credit ratings on JPM and 'A+/A-1' issuer credit ratings on its banking subsidiaries.
Standard & Poor's cited the possibility of broader problems with JPMorgan's hedging strategies, which the credit rater said isn't "consistent with what we have viewed as the company's sound risk-management practices."
S&P said it could downgrade J.P. Morgan's ratings by one notch if it determines that missteps in risk management aren't limited to the synthetic credit portfolio, that management is pursuing a more aggressive investment strategy than originally believed and if synthetic credit exposure still holds material risk.
Based on the announced loss, S&P now expects JPM to post Standard & Poor's-adjusted earnings of roughly $17.2 billion in 2012, versus previous expectation of more than $18.0 billion.
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