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S&P & Fitch lowered J.P. Morgan rating due to $2B loss

May 12, 2012

J.P. MorganS&P cuts outlook on J.P. Morgan to negative

Standard & Poor’s said late Friday it lowered its ratings outlook on J.P. Morgan Chase to negative from stable because of the bank’s unexpected $2 billion loss on derivatives. S&P kept its A/A-1 issuer credit ratings on the bank and its A+/A-1 ratings on its subsidiaries.

S&P said it could lower its ratings by a notch if its determines that risk management mistakes were not limited to the specific credit portfolio mentioned late Thursday, or if it believes management is pursuing a more aggressive investment strategy than originally believed.


Fitch downgrades J.P. Morgan after trading loss

Fitch Ratings said on Friday it downgraded J.P. Morgan Chase & Co.’s long-term credit rating to A-plus from AA-minus, saying that while the $2 billion trading loss disclosed by the bank on Thursday is "manageable," the potential reputational risk and risk-governance issues raised are no longer consistent with an AA-minus rating. "The magnitude of the loss and ongoing nature of these positions implies a lack of liquidity," Fitch said in a statement after the stock market closed. "It also raises questions regarding J.P. Morgan’s risk appetite, risk management framework, practices and oversight; all key credit factors."


Stock market reaction

Shares of J.P. Morgan closed down 9.3% on Friday and slipped further in after-hours trading.

U.S. stocks mostly slid Friday to a second weekly decline after a rise in consumer sentiment failed to outweigh J.P. Morgan Chase & Co.’s $2 billion trading loss, disclosed by the bank late Thursday.

The Dow Jones Industrial Average fell 34.44 points, or 0.3%, to 12,820.60, off 1.7% from the week-ago close. The S&P 500 retreated 4.6 points, or 0.3%, to 1,353.39, down 1.2% for the week. The Nasdaq Composite managed a fractional gain to close at 2,933.82, down 0.8% from last Friday’s finish

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