NEW YORK—JPMorgan Chase & Co. and Wells Fargo Co.’s positive quarterly earnings results sent the stock market into a brief rally last Friday, as the Dow reversed course on six consecutive days of losses.
The New York-based JPMorgan, the nation’s biggest bank by assets, reported $5 billion in last quarter earnings, exceeding analysts’ expectations. Wells Fargo’s net income also surged, driven by better lending results.
The positive results sent U.S. stocks soaring on July 13, as the Dow gained 204 points, or 1.6 percent. The S&P 500 Index gained 22 points, or 1.6 percent, while the Nasdaq Composite Index increased by 42 points, or 1.5 percent.
The banking sector fared well in Friday trading, with JPMorgan shares up more than 6 percent, by far the biggest gainer of the 30 Dow components. Other financial firms, such as Goldman Sachs Group Inc. and Morgan Stanley, were also in the black on the day. Wells Fargo shares jumped 3 percent Friday.
‘London Whale’ Losses Swell
JPMorgan revealed that its formerly $2 billion trading loss triggered by its Chief Investment Office—by a trader nicknamed the “London Whale” due to the size of the position his trading book accumulated—has now swelled to $5.8 billion.
In a conference call Friday, JPMorgan said that it expects to lose at most $1.7 billion on those trading positions, and that it is working at unwinding those positions.
Losses of that amount were not exactly unexpected, as JPMorgan CEO Jamie Dimon had previously disclosed that the loss could get bigger. While $5.8 billion is a huge loss, however, the bank still made a quarterly gain due to its profitability elsewhere.
But new documents arising from JPMorgan’s internal investigations reveal that certain traders may have tried to conceal losses from top managers by using high marks on their positions.
“The firm has recently discovered information that raises questions about the integrity of the trader marks and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses in the portfolio during the first quarter,” according to a SEC filing.
According to securities law experts, if traders concealed marks with the intention to defraud or conceal, then they could face criminal charges.
JPMorgan, for its part, has already withheld certain remuneration from top managers in the department responsible for the huge losses.
“It sounds like a whole lot of money—it is a whole lot of money—but it’s not that significant related to JPMorgan,” said billionaire investor Warren Buffett in an AP report. Buffett holds around 1 million shares of JPMorgan in his personal portfolio.
Despite that, a Reuters report indicated that federal criminal investigators are investigating whether traders knew of the losses but hid them from upper management, after an earlier internal investigation suggested that may had occurred.
Both the FBI and the Securities and Exchange Commission are probing the bank and its London Chief Investment Office.
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