Some of us may believe that we cannot trust certain people to loan money to them. That may be a wise observation on our part, but don’t think that you are the only one with bad luck lending to those you know. J.P. Morgan has us all beat when it comes to taking a loss on a loan.
CNBC reports that the mega-bank lost around $143 million on a single client by lending that client money for trading related purposes. They lost all of that money in a single quarter (the fourth quarter of 2017).
The loan issued by J.P Morgan was one in which they were allowing a client to trade on margin. The bank said that its equities revenue for the quarter would have climbed twelve percentage points, but for that single client. At the same time, they refused to name who the client was citing privacy concerns. They did go on to say that it is very likely that other banks had exposure to the same client during the same period of time.
Some of the other banks that are suspected of having losses on their books because of this client are Bank of America and Citigroup. It is rumored that the client in question is none other than Christo Weise, the chairman of Steinhoff. If that is true, then all of those other banks might also be in trouble.
J.P. Morgan in particular has had some difficult with their trading segment of the business generating the kind of profits that they would like to see from it. Primarily, the bond trading business has gotten a lot tighter for J.P. Morgan. Revenues there have declined by roughly one-third as of late. This has to do with tighter credit spreads as well as low volatility. Customers are looking for something that will generate a stronger return for them in this bull market.
Even with the trading loss, the bank is still relatively healthy. They are still taking part in the continued climb in value in the market. They have seen their shares climb higher as well. Although this is an eye-popping number on the face of it, there are a lot of reasons to still have faith in the company. They deal with these kind of numbers all the time, it is nothing new to them. A trading loss last quarter can easily turn into big gains in the near future.