News - Economics / markets
Categories: Economics / Markets
JP Morgan Chase has sold an estimated $25bn of profitable securities in an effort to boost earnings and recoup some of the $2bn it suffered in trading losses earlier this month.
CEO Jamie Dimon said the bank sold corporate bonds and other securities which generated $1bn that will help offset more than the losses. As a result, the bank will not have to report as big an earnings hit for the second quarter, according to Reuters.
The sales of profitable securities from elsewhere in the bank's investment portfolio will increase its costs by triggering taxes on the gains and by eliminating future earnings from the securities.
But rather than creating new value for investors, the transactions merely shift gains in securities from one part of the company's financial statements to another.
Former Securities and Exchange Commission chief accountant Lynn Turner said: "They really made two stupid decisions. The first was taking risks with derivatives that they did not understand.
"The second is selling assets with high income that they can't replace. In a low interest-rate environment, the bank will struggle to generate as much income with the cash it received from selling the securities," said Turner.
Dimon first disclosed the sales on 10 May when he announced the derivatives losses generated from the bank's London office and trader Bruno Iksil - nicknamed the "London Whale" in credit markets due to the size of the trading positions he took.
JP Morgan Chase shares slid 8.5% after the news of the surprise trading loss hit Wall Street.
Dimon noted that the bank has another $8bn of profit it could gain by selling an array of debt securities.
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