JP Morgan Managers Being Told Trade Loss is $9 Billion

This news report has been updated

Banking competitors are trying to lure away top talent at JP Morgan by highlighting the recent prop trading losses are likely to affect bonuses and Jamie Dimon isn’t being honest about how bad the loss will be. On July 13th the banking giant will announce 2nd quarter earnings and a real-time number is expected on how many billions net income gets wacked with because the London whale trade has been wound down or they’re willing to admit how bad the wind down will be at based on how the trade looks at the end of June. Last week Mark DeCambre at the New York Post wrote his JPM sources expect the loss to be between $4-6 billion – JPM’s estimate in May was only $2bn. But I heard this week JPM managing directors are being told total losses on the trade are estimated to be more. To the tune of $9 billion – Ouch!

That could be two quarters worth of net income and since JPM staffers are paid in part on how the whole company earns that rumor about a yearend lack luster bonus is looking more like a reality. Not good if you are killing your quota this year and working in a group that has nothing to do with the wrong way derivative trade. So a few seasoned wealth managers I spoke with are weighing competitor offers and seriously thinking of jumping ship – even if that means they give up their not yet vest $JPM stock.

Of course JPM can use accounting tricks to make the trading loss look better on final quarterly income statements. They can also choose to stay in parts of the trade so they don’t have to back a full loss right away. I highlighted last month how litigation reserves can be added or taken away to move the net income number around when they need it. But considering the recent news heat they’ve gotten on how low the legal reserves already are for the size of the RMBS putback problem…they’d be pretty damn arrogant to try to play with that number in the face of their regulators. Of course if their other trading departments make good on another trading bet, like being short silver, that could help offset losses. But loosing $9 billion on a single trade strategy gone so very wrong will put a lot of pressure on the White House’s favorite banker and make the Senate look even more foolish for their fluffy congressional hearings on the failed trade. If a $9bn gross trading loss becomes reality then the 3 notch downgrade by Moody’s could slid even further which increases their cost of borrowing and well – that sucks for anyone contingent on a JPM paycheck.

UPDATE 6-28-12: This morning the New York Times Dealbook rewrote my scoop about a possible $9bn loss for JPM and didn’t credit me for reporting this first. They’ve done journalism theft like this before when I was scooping them at the New York Post during the financial crisis. Times reporters like Andrew Ross Sorkin led the scoop stealing behavior during 08 and this morning I see him doing the same thing on CNBC.Sorkin claimed ‘his sources’ were saying reported losses will be closer to $4-6bn – a number he read on June 21st when Mark DeCambre (my former jurno peer) 1st reported it at the New York Post. Scoops are assets for journalist and I don’t appreciate the New York Times or Sorkin taking my hard-earned research and sourcing and using it as their own without a mention or link to my original reporting. If you think this is wrong- write them, comment on their sites or tweet about it. Only together we can hold other journalist accountable and demand accuracy.

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