JP Morgan chief executive Jamie Dimon called the mistakes the result of 'bad judgment'. Photograph: Justin Lane/EPA
The US's top financial watchdog has launched a review into the disclosure JP Morgan's $2bn London trading loss.
In an interview with Fox Business, the chairman of the Securities and Exchange Commission (SEC), Mary Schapiro, said it was "safe to say that all the regulators are focused on this".
In a further blow to the embattled financial services giant, credit-rating agency Fitch downgraded the bank Friday.
The agency called the losses manageable but warned that the damage to JP Morgan's reputation could lead to another cut, unless the issue is "appropriately sized and addressed."
SEC officials are believed to be looking at accounting and disclosure issues relating to the loss at the US's largest bank, but have yet to decide whether to launch a formal investigation.
In April Jamie Dimon, the bank's chief executive, dismissed stories about trading problems in London.
This week he cited "sloppiness", "bad judgment" and "many errors" for the losses, which are expected to grow.
The news comes amid claims that US and British regulators had been in discussions with JP Morgan for almost a month about the trading group suffering the losses.
On Friday, senators pushing for greater regulation said the loss was a "textbook illustration" of why Wall Street needs more oversight.
Questions first surfaced about the London-based group, called the chief investment office, in April after reports emerged that a trader was taking large bets that distorted the market. At the time, Dimon publicly dismissed the concerns about the trading activities, calling them a "complete tempest in a teapot".
The trader, Bruno Iksil – nicknamed the London Whale for his bullish trading or Voldemort, after Harry Potter's nemesis - has so far refused to comment to the press on what went wrong.
On Thursday JP Morgan issued a surprise trading update after US markets had shut admitting it had incurred $2bn (£1.2bn) of trading losses in the past six weeks.
The bank expects to take an additional $1bn hit in the second quarter and said the losses occurred in its chief investment office, a part of the bank intended to manage risks. The suspected trading position to blame involved credit default swaps, which insure against losses when companies or governments collapse.
Dimon said: "The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought. There were many errors, sloppiness and bad judgment."
On Friday, law firm Finkelstein Thompson said it was investigating claims on behalf of JP Morgan shareholders regarding the trading strategy and resulting losses. The bank's shares closed at $36.95, down 9.3% Friday.
The trading loss is an embarrassment for a bank that came through the 2008 financial crisis in much better health than its peers.
It kept clear of risky investments that hurt many other banks.
The loss came in a portfolio of the complex financial instruments known as derivatives, and in a division of JP Morgan designed to help control its exposure to risk in the financial markets and invest excess money in its corporate treasury.
Bloomberg reported in April that a single JP Morgan trader was making such large trades that he was moving prices in the $10tn market.
Dimon said the losses were "somewhat related" to that story, but seemed to suggest that the problem was broader. Dimon also said the company had "acted too defensively," and should have looked into the division more closely.
The Wall Street Journal reported last month that JP Morgan had invested heavily in an index of credit-default swaps, insurance-like products that protect against default by bond issuers. Hedge funds were betting that the index would lose value, forcing JP Morgan to sell investments at a loss. The losses came in part because financial markets have been far more volatile since the end of March.
Partly because of the $2bn trading loss, JP Morgan said it expected a loss of $800m this quarter for a segment of its business known as corporate and private equity. It had planned on a profit for the segment of $200m.
The loss is expected to hurt JP Morgan's overall earnings for the second quarter, which ends on 30 June. Dimon apologised for the losses, which he said occurred since the first quarter, which ended 31 March.
"We will admit it, we will learn from it, we will fix it, and we will move on," he said.
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