Bank ETFs Under Pressure On JPM News
May 11, 2012
(Story to be updated.)
Bank-sector ETFs came under pressure Friday following news that JPMorgan Chase was facing more than $2 billion in mark-to-market losses in its synthetic credit portfolio this quarter, as reported by several news outlets.
J.P Morgan itself lost more than 9 percent in Friday's session, and funds like the $6.89 billion Financial Select Sector SPDR Fund (NYSEArca: XLF) lost more than 1 percent today. JPMorgan Chase represents some 9.2 percent of XLF’s exposure, which consists primarily of banks and financial services names.
JPMorgan Chase said late Thursday, after the market had closed, that the losses incurred since March 31 were due to big trades gone awry in its chief investment office. The complex web of trades is said to be predicated on steadily improving economic data—a market view that began to derail in recent weeks, according to the Wall Street Journal. The Journal later reported that U.S. regulators are investigating the trades.
The news triggered a wave of selling yesterday that pushed JPMorgan Chase’s stock price down by more than 6.5 percent in after-hours trading, the Journal said. As noted, those losses mounted to more than 9 percent in Friday's session.
Other ETFs, such as a pair of iShares funds, were caught in the cross hairs of J.P. Morgan's problems on Friday: the $298.5 million iShares Dow Jones U.S. Financial Services Index Fund (NYSEArca: IYG), which allocates nearly 12 percent to JPMorgan Chase, and the $520.5 million iShares Dow Jones U.S. Financial Sector Index Fund (NYSEArca: IYF), which allocates nearly 7 percent to the bank.
IYG's price fell almost 1.2 percent, while IYF dropped a bit less than 1 percent.
Even the Vanguard bank-focused fund, the Vanguard Financials ETF (NYSEArca: VFH), which has JPMorgan Chase as its biggest holding could be impacted. It fell 0.79 percent, according to data posted on Google Finance.
The $859.1 million fund had 7.2 percent allocated to J.P. Morgan as of March 31, according to Vanguard’s website.
Other banks such as Bank of America and Citigroup were also feeling the pressure stemming from generalized concerns surrounding the extent of JPMorgan’s exposure. B of A's stock fell about 2 percent today, while Citi's fell by almost 4.25 percent.
These major banks are all top holdings in most bank-sector ETFs, including the ones mentioned above.