JPMorgan Chase is the first big bank to report second-quarter earnings,… (Frank Franklin II, Associated…)
NEW YORK — Chief Executive Jamie Dimon is set to defend his bank and his reputation after JPMorgan Chase & Co.'s big trading blunder.
Early Friday morning, Dimon will host a two-hour face-to-face meeting with analysts to talk about the bank's progress in unwinding big derivatives bets by a trader Wall Street dubbed the London Whale.
Since JPMorgan revealed more than $2 billion in trading losses in May, estimates of how deep the losses could get have varied — including one estimate that it has surged to $9 billion. The trades cost the bank not just money but also its credibility as one of Wall Street's best risk managers.
The massive trading loss isn't all investors will focus on. JPMorgan is the first big bank to report second-quarter results, and investors will be listening for anything that Dimon — long seen as one of the shrewdest bankers in the business — will say about a host of ills that has slammed the financial industry.
"The challenges are pretty formidable for the sector, at least over the next several quarters, if not for a longer period of time," said Todd Hagerman, managing director of equity research at Sterne Agee & Leach Inc. in New York.
Hagerman and other analysts said they are paying close attention to what bank CEOs say about the state of their business. Wells Fargo & Co. also reports results Friday, with industry heavyweights includingGoldman Sachs Group Inc.,Citigroup Inc.,Bank of America Corp.and others coming in the next few weeks.
Big banks have had a tough year. First came regulators' stress tests, then a $25-billion mortgage settlement and credit downgrades — all while the U.S., European and Asian economies slowed, further squeezing profits.
And just as JPMorgan appears to have assuaged some investor anxieties, another firestorm has started: manipulation of key interest rates by British banking giant Barclays and potentially other global banks.
"There's investor fatigue over the new uncertainty" because of the rate-fixing scandal, said David Konrad, a banking analyst at Keefe, Bruyette & Woods in New York.
"We've had a laundry list of things that we've worked through and checked off," he added. "And then a new item comes. It really hurts investor sentiment."
Barclays, the British investment bank, recently agreed to pay $450 million to settle charges that it tried to manipulate the London interbank offered rate, or LIBOR, a key interest rate that helps determine costs of consumer and corporate borrowing rates and financial products across the financial world. The scandal has already claimed three top Barclays officials, including its chairman and chief executive.
About 20 other major banks, including U.S. institutions, are under investigation in the LIBOR-fixing probe. They could face not only hefty fines but also civil lawsuits from institutional investors.
The California Public Employees' Retirement System, for example, said it's examining whether it was stung by any LIBOR-fixing before it assesses its options. "We are looking at the impacts," CalPERS spokesman Brad Pacheco said in an email.
LIBOR-fixing fallout could hurt Citigroup, JPMorgan and Bank of America, which help set the interest rate, Mike Mayo, a managing director at Credit Agricole Securities USA, said in a recent research note.
"We believe the industry is one more shoe to drop away from major regulatory aggressiveness against the banks," Mayo said, citing JPMorgan's losses and low public approval for banks.
After JPMorgan's trading losses, some lawmakers have been beating the drum for strengthening rules put in place by the Dodd-Frank financial overhaul of 2010.
A focus has been the so-called Volcker Rule, which would sharply limit banks' ability to trade with their own funds. So-called proprietary trading has been cited as a contributing factor of the financial crisis. JPMorgan has characterized its problematic trades as bungled attempts at hedging its portfolio.
Regulators could also tighten restrictions on how banks use their capital, limiting stock buybacks that investors may be hoping for — particularly shareholders of JPMorgan, which called off a planned buyback after its disclosure in May.
Slowing growth in Europe, China and the U.S. makes for a rough time for banking too. Trading, loan volume, and mergers and acquisitions have all slowed amid tepid global growth.
Lower interest rates in the U.S. — with 10-year Treasury yields at 1.5% — can also tighten banks' revenue streams.
"With an economy that's growing at a very lackluster, pedestrian rate," Sterne Agee's Hagerman said, "you simply can't grow your business in that kind of environment."
Times staff writer Marc Lifsher contributed to this report.