JP Morgan cuts capital level in wake of losses

City A.M. Reporter
BANK regulators forced JP Morgan to recalculate capital levels for its primary banking unit, resulting in lower readings of its cushion against losses, the company said yesterday.

The revisions reduced the bank’s Basel I Tier 1 common ratio to 9.9 per cent from 10.3 per cent at the end of June, JP Morgan said in a filing with the US Securities and Exchange Commission.

The new reading remains significantly higher than the five per cent level at which banks are considered well-capitalised under Federal Reserve stress tests.

The changes reflect “regulatory guidance regarding a limited number of market risk models” used for positions in the first half of the year, including some at the company’s chief investment office, the bank said.

The chief investment office is responsible for nearly $6bn of losses from the so-called London Whale derivatives trades.

The firm also formally restated its profits for the first quarter of the year by $459m (£294m) to $4.92bn to reflect the trading losses.

Jamie Dimon, chief executive of JP Morgan, has postponed repurchases of the bank's stock, and on Wednesday regulators forced his company to reduce its calculation of its capital cushion against losses suffered in the derivatives trades.

In a filing yesterday, JP Morgan said it now hopes to restart its stock buyback programme in the first quarter of 2013, roughly three months later than the goal Dimon set in a meeting with institutional investors and stock analysts back in July.

For JP Morgan to resume stock repurchases, it must win approval from the Federal Reserve after another annual stress test of its balance sheet, and the company’s board of directors must complete their own investigation of the CIO.

The delay is a blow to Dimon, who came under fierce pressure on both sides of the Atlantic in the wake of the London Whale losses.