JP Morgan Reports Unexpected Losses; Shares Sell-Off After Hours

JP Morgan JPM released a press release highlighting unexpected losses in its CIO division. As per the headlines on Bloomberg, JPM will post an $800 million loss in its corporate division in Q2 on write-downs from synthetic credit derivatives held in its CIO division. JPM also says that it expects $4.2 billion in extra legal losses beyond reserves. Lastly, JPM says that it will need $971 million of extra collateral in the event of a one-notch downgrade and will need $1.7 billion in extra collateral in the event of a two-notch downgrade. Just for your information, JPM made $17.5 billion last year, so these losses really can be recouped in a few months of normal operations.

In the conference call, CEO Jamie Dimon is quoted as saying that the losses were caused by poor decision-making and execution, and that the risk of the portfolio under scrutiny has increased as the assets have become more volatile in recent months. He says that JPM's Basel III ratio has been decreased to 8.2 from 8.4 due to this loss and that this situation is unique. Lastly, he says that all other guidance given remains unchanged.

JPM is down about 5% after hours on the news, and is dragging both financials and S&P futures down with it. The XLF XLF, the financial sector ETF, is down about 2% after-hours and S&P 500 futures, E-minis, are down about 10 points after-hours.