JP Morgan Chase & Co. said on Friday that it has restated its first-quarter earnings in the wake of the derivatives trading losses at its Chief Investment Office division. JP Morgan said that its first-quarter net income will be revised lower by US$459mn because traders in its CIO misstated the value of their positions.
The US banking major said that the misstatements reflected material weaknesses in its internal control over financial reporting in the first quarter.
The restatement will reduce the company's first-quarter earnings, but will also reduce the CIO's trading losses in the second quarter.
JP Morgan said that recently discovered information 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.
Reports on Friday said that the so-called "London whale," Bruno Iksil, has now left the bank along with two other employees at the CIO in London.
JP Morgan also said that its second-quarter profit fell 8.7% to US$4.96bn, or US$1.21 per share, as revenue dropped 17% to US$22.18bn.
Analysts had expected earnings per share of 72 cents and revenue of US$22bn.
The quarter included US$4.4bn of losses on CIO's synthetic credit portfolio, US$1bn of securities gains in CIO and a US$545mn gain on a Bear Stearns-related first-loss note, as well as a reduction in loan loss reserves by US$2.1bn.
JP Morgan CFO Doug Braunstein said on a call with analysts that the loss from its CIO's errant trades has totaled US$5.8bn so far this year. This is much higher than the initial estimate of ~US$2bn declared by CEO Jamie Dimon when the losses were first revealed on May 10.
"This has shaken our company to the core," Dimon told analysts today.
Dimon said that the bank's CIO would no longer trade derivatives, which were behind the big loss. "CIO will not longer trade a synthetic credit portfolio and will focus on its core mandate of conservatively investing excess deposits to earn a fair return," Dimon said in a statement.
Dimon said that JP Morgan hopes to restart buying back stock in the fourth quarter, if the Federal Reserve approves the bank's new capital plan.
Shares of JP Morgan advanced by ~2% after initially dropping in premarket trading