JPMorgan Chase launches a stock market rally
NEW YORK — JPMorgan Chase blew away a cloud of concern hanging over the banking industry Friday and set off a rally in stocks. Relieved investors drove up bank stocks, ended a six-day losing streak for the market and sent the Dow Jones industrial average up 204 points, its best day this month.
Bank’s bad bet
JPMorgan said Friday its traders may have tried to conceal the losses from a soured bet that has embarrassed the bank and cost it almost $6 billion, far more than CEO Jamie Dimon first suggested.
It also said it plans to revoke two years’ worth of pay from senior managers involved, and that it had closed the division responsible for the loss.
Ina Drew, former chief investment officer, who left after the loss came to light, had volunteered to return as much pay as was allowed under a so-called clawback provision in her contract. It was not clear how much she will repay.
Also, the bank said it would revoke two years’ worth of pay from three other top managers involved. The Wall Street Journal reported that the trader known as the “London whale,” for the size of the bets he placed, has left JPMorgan.
JPMorgan jumped 6 percent, the biggest gain in the Dow by far. The country’s largest bank earned $5 billion in the most recent quarter, easily beating Wall Street’s forecasts, even as it took a deeper loss from a complex trade that went wrong.
The results brightened the outlook for other major banks. If JPMorgan could sustain such a hard hit and still post stronger earnings, the thinking went, maybe others could too.
“Today is all about bank uncertainty getting resolved,” said Doug Cote, chief market strategist at ING Investment Management. “To me, that’s what is really driving the market.”
JPMorgan revealed that the loss from a derivative trade it first disclosed in May had grown to $5.8 billion, nearly triple the original estimate. Its stock shot up $2.03 to $36.07.
The bank’s underwriting business also fared better than expected. That rubbed off on the investment banks Goldman Sachs and Morgan Stanley, driving both up more than 3 percent. Goldman jumped $3.41 to $97.43. Morgan Stanley rose 50 cents to $14.05.
The Dow gained 203.82 points to close at 12,777.09. The S&P 500 index rose 22.02 to 1,356.78 and the Nasdaq composite gained 42.28 to 2,908.47.
Wells Fargo, the other major bank reporting results Friday, said a strong pickup in lending lifted its net income 18 percent. Wells Fargo has managed to avoid problems plaguing other big banks and is now the country’s largest mortgage lender. The bank’s stock gained 3 percent, or $1.06, to $33.91.
Todd Salamone, director of research at Schaeffer’s Investment Research, said the rally in bank stocks shows that investors had expected the worst. When they are gloomy on an industry, the slightest bit of good news can jolt their stocks up.