(Bloomberg News) U.S. stocks fell, sending the Standard & Poor's 500 Index toward a two-week decline, as JPMorgan Chase & Co. said it had a $2 billion trading loss after positions in credit securities proved riskier than expected.
Financial shares, which comprise 15 percent of the S&P 500, had the biggest decline among 10 industries. JPMorgan tumbled 9 percent as Chief Executive Officer Jamie Dimon said the lender made egregious mistakes and that trading losses were "self inflicted." Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. lost at least 3.2 percent. The Financial Select Sector SPDR Fund decreased 1.4 percent.
The S&P 500 retreated 0.2 percent to 1,355.35 at 9:50 a.m. New York time. The benchmark gauge for American equities has fallen 1 percent this week. The Dow Jones Industrial Average declined 40.07 points, or 0.3 percent, to 12,814.97 today.
"It's a black eye for JPMorgan," said Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees more than $1.9 billion. "It was considered to be one of the better big banks. There's already a debate about regulation. Jamie Dimon will be in a weaker position to push back against it, JPMorgan will be in a weaker position."
JPMorgan led the plunge in financial shares. The firm's chief investment office, run by Ina Drew, 55, took flawed positions on synthetic credit securities that remain volatile and may cost an additional $1 billion this quarter or next, Dimon told analysts yesterday. Losses mounted as JPMorgan tried to mitigate transactions designed to hedge credit exposure. "There were many errors, sloppiness and bad judgment," Dimon said.
U.S. lawmakers and interest groups favoring tighter restrictions on proprietary trading said JPMorgan's loss bolsters their case. Senator Carl Levin, the co-author of the so-called Volcker rule and chairman of the Permanent Subcommittee on Investigations, said the disclosure served as a "stark reminder" to regulators drafting the proprietary- trading ban required by the 2010 Dodd-Frank Act.
"The regulatory and political environment is already a headwind and clearly this doesn't help," wrote Deutsche Bank AG New York-based analysts, including Matt O'Connor, in a report. Bank of America analyst Guy Moszkowski wrote separately that JPMorgan's losses are "very poorly timed for the industry" and will be taken by those seeking stricter regulation as "an example of prop trading dangers."
JPMorgan tumbled 9 percent to $37.09. Bank of America lost 3.1 percent to $7.46. Citigroup retreated 4.4 percent to $29.31. Goldman Sachs slipped 3.6 percent to $102.50. Morgan Stanley slumped 5 percent to $14.83. The Financial Select Sector SPDR Fund, an exchange-traded fund, decreased 1.4 percent to $14.77.