JPMorgan Credibility Cut With Fitch Downgrade
NEW YORK (TheStreet) -- Fitch Ratings has cut JPMorgan Chase's (JPM) long term-debt rating by one notch to A+ from AA- as the nation's largest bank continues to reel from a $2 billion trading loss it disclosed late on Thursday.
The ratings cut caps a dramatic 24 hours after the trading loss was unveiled, which has humbled the bank's chief executive Jamie Dimon, one of Wall Street's most credible advocates, and reignited calls for financial industry reform. Fitch's move adds to mounting negative developments for JPMorgan that include reports of regulatory inquiries, analyst downgrades and lingering uncertainty over the magnitude of its trading loss.
|JPMorgan Chase CEO Jamie Dimon|
JPMorgan CEO James Dimon's announcement of a $2 billion trading loss just under 45 days into the second-quarter pushed the company's shares down over 9% in Friday trading, to a closing price of $36.96. Shares fell slightly in after-hours trading on Fitch's ratings cut.
JPMorgan's ratings cut and its tumbling shares come after the bank disclosured a trading loss to its synthetic credit positions in its Chief Investment Office. Those positions were intended to hedge JPM's overall credit exposure during periods of credit stress; however, CEO Dimon said they were poorly executed.
"Fitch views the size of loss as manageable. That said, the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity. It also raises questions regarding JPM's risk appetite, risk management framework, practices and oversight; all key credit factors. Fitch believes the potential reputational risk and risk governance issues raised at JPM are no longer consistent with an 'AA-' rating," said the agency in its cut.