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European banks also hit by JPMorgan loss

May 11, 2012

LONDON: European bank stocks fell on Friday after news of a trading loss of at least $2 billion at US powerhouse JPMorgan and as fears about the fallout on banks from debt crises in Greece and Spain rattled investors.

The STOXX Europe 600 banking index was down 1.7 per cent at 0725 GMT. Many banks were down nearly 2 per cent, including Barclays, Deutsche Bank, Santander and BNP Paribas.

Credit Agricole was the biggest faller, down 2.4 per cent, after quarterly profit fell 75 per cent when it took a 940 million euros ($1.22 billion) hit on its exposure to debt-laden Greece.

JP Morgan, long viewed as a strong risk manager, said its loss was from a failed hedging strategy.

Although the loss was specific to JPMorgan, it could have broader negative implications - raising the threat of further regulatory scrutiny and the difficulties of risk management, analysts said. J.P. Morgan chief executive Jamie Dimon has been an outspoken critic of too much regulation.

“This is a major embarrassment for JP Morgan Chase and for the industry at a time it is trying to fend off greater regulation,” said analysts at Mediobanca.

Spain, meanwhile, is due to unveil new reforms on Friday to complete the clean-up of its banks, demanding they set aside 35 billion euros more to cover loans in their real estate portfolios. Some critics say the plan does not go far enough to tackle its crisis.