Tags: Moodys | JPMorgan | Credit | Negative

Moody's: JPMorgan Trading Loss a 'Credit Negative'

Monday, 14 May 2012 02:15 PM

Moody's Investors Service on Monday said JPMorgan Chase & Co.'s $2 billion trading loss is a negative development for the bank's bondholders.

JPMorgan's credit rating of Aa3, firmly ensconced in investment grade territory, is on review for downgrade, along with those of other major global financial institutions and Western European banks.

"This development is credit negative" for JPMorgan bondholders, Moody's said.

"This nasty surprise from one of the better-managed banks once again highlights the opacity of the risks of global investment banks, as well as the difficulty of controlling these risks," Moody's analyst Peter Nerby wrote in the firm's Weekly Credit Outlook report.

On Thursday, the bank disclosed the $2 billion trading loss, citing a failed hedging strategy. This development will be included in its current rating review, but in itself does not mark any change to its current status, Moody's said.

Fitch Ratings cut JPMorgan's rating on Friday by one notch, to A-plus from AA-minus, and S&P revised its outlook for the bank to negative from stable but affirmed its A credit rating.

Nerby said that while the loss itself was not significant in the context of JPMorgan's profits, as well as its solid capital and liquidity positions, it "once again highlights the impenetrable veil masking the true risk profiles of global derivative dealers or users such as JPM.

"It may also be an example of trading desk 'mission creep,' where a transaction originally intended as a hedge morphs into a new proprietary position, perhaps to boost returns at a time when achieving an acceptable return on equity is hindered by low interest rates and other revenue constraints as well as increasing costs," the report said.

"These risks — opacity and inherent risk management challenges — are two of the factors underpinning our current review of global investment banks."

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Monday, 14 May 2012 02:15 PM
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