JPMorgan Chase’s CEO Jamie Dimon may get burned by a coal trade that is said to have rung up a loss of as much as $250 million this quarter, The Post has learned.
The hit, which occurred on the bank’s commodities desk, is believed to have been the result of wrong-way bets that JPMorgan placed in recent weeks on coal traded in different regions of the world.
The potential losses come at an inopportune time, as Washington lawmakers review sweeping changes to Wall Street rules on proprietary trading.
A JPMorgan spokeswoman declined to comment on the commodities operation, which is run by global head Blythe Masters.
It’s not entirely clear how JPMorgan racked up the coal loss, but sources speculate the firm was employing an arbitrage-trading strategy linked to the price differences in coal prices between northwest Europe and South Africa.
Specifically, the firm’s traders were believed to have been wagering on the differentials between the costs associated with shipping coal in northwest Europe and the price of delivering coal in South Africa’s Richards Bay.
Sources said any number of trading methods in the opaque market could have caused the smoldering hit, including swings in demand from China and sudden changes in freight costs and a labor strike in Colombia.
Some observers say the trading loss could be in the range of $200 million to $250 million, with some speculating that it could swing lower or higher.
Sources familiar with the firm’s trading strategy said JPMorgan was still unwinding its positions.
To be sure, the impact of the trades would be a drop in the bucket for one of the nation’s largest and strongest banks with a roughly $150 billion market cap.
But it’s just this type of trading example that provides ammunition for backers of the “Volcker Rule,” named after ex-Federal Reserve head Paul Volcker, which looks to ban large banks with easy access to federal funds from engaging in prop trading in areas including commodities.
“If JPM was running this position for speculative interests — a hedge fund, for example — or for its own account, it suggests an abuse of leverage in a market that lacks transparency,” said Ken Mino, commodities expert and principal of KCM Consulting Corp.
For Dimon, the trading hit would also come in the closing stretches of a second quarter, which is expected to be a particularly poor one for most Wall Street firms.