JPMorgan Loses $2 Billion, Goldman Redeems $250 Million From Hedge Funds

JPMorgan Chase & Co.’s (JPM) CEO Jamie Dimon has indicated that the firm lost roughly $2 billion. JPM’s chief investment office, which focuses on hedging, made some risky bets on synthetic credit securities that didn’t play out to the advantage of the bank. The company, which declined 5.5% to $38.50 in extended trading at 5:55 p.m. (EST) issued a quarterly securities filing statement which read:

“This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed.”

Dimon has migrated the chief investment office towards larger and riskier speculative bets, according to five former employees, Bloomberg News reported on April 13. Former JPM executives claimed that the company made bets of such great magnitude that they were unable to unwind them without having a dramatic effect on financial markets or losing capital.

Goldman Sachs Group Inc. (GS), who had $3.06 billion in hedge-fund stakes at the end of March, redeemed roughly $250 million from hedge funds as the 5th-largest U.S. bank (by assets) begins complying with new banking regulations requiring a reduction of such investments, Bloomberg reported.

The Volcker rule provision of the Dodd-Frank financial-reform law requires federally ensured banks to limit their private equity and hedge fund investments to no more than 3% of the fund or 3% of the bank’s Tier 1 capital.

Sachs, whose fund stakes were worth $17.2 billion at the end of March, stated in a filing:

“We currently expect to redeem up to approximately 10 percent of certain hedge funds’ total redeemable units per quarter over 10 consecutive quarters, beginning March 2012 and ending June 2014. In addition, we have limited the firm’s initial investment to 3 percent for certain new funds.”

What are your thoughts on JPMorgan’s $2 billion loss and Goldman Sachs’ redeeming $250 million from hedge funds?