JP Morgan forced to re-evaluate Q1 earnings
JP Morgan Chase has been forced to reduce its previously reported net income for the first quarter of the year after the integrity of staff in its chief investment office was called into question.
The re-evaluated position slashes JP Morgan's reported net earnings by $459 million and is related to traders in the chief investment office obligations to mark trade positions where they expected to execute in the market.
The company discovered employees may have tried to avoid showing the full amount of losses in the portfolio during the first quarter.
"We are no longer confident that the trader marks reflected good faith estimates of fair value at quarter end and we decided to remark the positions utilising external 'mid-market' benchmarks, adjusted for liquidity considerations," the global investment firm said.
JP Morgan also remediated internal controls for the financial reporting of the synthetic credit portfolio after the breaches were discovered.
It said previously filed financial statements for the first quarter could not be relied upon and a new financial statement is expected to be filed in due process.
JP Morgan said the restatement would have no effect on total earnings or revenues for the company year-to-date. The company reported net income of $5 billion or $1.21 per share on revenue of $22.9 billion, including trading losses for the second quarter.
The firm transferred the synthetic credit positions to its investment bank, closing down the CIO synthetic credit branch.
An extensive review of CIO trading losses determined the bank had the expertise, capacity and trading platforms to handle the synthetic credit portfolio.
JP Morgan said it believed the events were isolated to the CIO which had undertaken a complete management overhaul and improved governance standards.
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