JPMorgan Chase, the biggest US bank, has revealed a surprise trading loss of at least $2bn (£1.2bn) on complex investments made by its traders.
Chief executive Jamie Dimon blamed “errors, sloppiness and bad judgement” for the losses and warned “it could get worse”.
The risky hedging strategy could cost the bank an additional $1bn, he added.
JPMorgan shares dropped 7% in after-hours trading, and other bank shares also fell.
Goldman Sachs, Citigroup and Bank of America suffered heavy losses in electronic trading after the market close on Wall Street.
Shares in European banks were also affected, with Barclays falling 2.85%, Deutsche Bank down 2%, and BNP Paribas 2.6% lower.
‘Self-inflicted’
Overall, after accounting for other gains, losses at JPMorgan’s chief investment office (CIO) are estimated to come in at $800m in the second quarter.
The strategy taken at the CIO unit, run by Ina Drew in New York and Achilles Macris in London, had been “riskier, more volatile and less effective” than previously believed, Mr Dimon said.
“These were egregious mistakes,” he said. “They were self-inflicted and this is not how we want to run a business.
“It could get worse”, he warned. “This could go on for a little bit.”
‘Moving on’
The CIO is an arm of the bank used to make broad bets to hedge its portfolios of individual holdings. Hedging is an investment practice used to reduce the risk of price fluctuations to the value of an asset.
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