Shock $2bn loss for JP Morgan hits UK banks

America’s largest bank by assets said it ran up the losses over the last six weeks in a trading portfolio designed to hedge against risks the company takes with its own money.

The news, delivered after US markets closed on Thursday, prompted fears that UK regulators will toughen financial oversight in response. That weighed on London’s banking shares, especially Barclays, which has a large investment banking arm. Barclays closed 2.8 per cent lower at 202.8p, RBS shed 0.8 per cent to 22.8p and Lloyds lost 0.3 per cent to 31.1p.

Reports on Friday suggested JP Morgan has informed the Financial Services Authority of the loss, although there was no indication that the regulator will take action.

The losses – said to relate to a trader nicknamed the “London Whale” – are a blow to the bank’s reputation as one of the most consistently profitable in the industry.

JP Morgan, which stayed in the black throughout the financial crisis, said the trading position could yet cost it a further $1bn and would probably push it to a loss of $800 million in the current quarter.

It is also a blow to chief executive Jamie Dimon, who has been a vocal critic of tighter regulation in US in recent years. Admitting he had “egg on his face”, he said: “The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought.”