How Important Is $2 Billion to JPMorgan?

The following video is part of our "Motley Fool Conversations" series, in which senior analyst Anand Chokkavelu, CFA, discusses topics across the investing world.

JPMorgan announced an unexpected $2 billion in "hedge" losses on credit default swaps late last week. Understandably, the market hasn't been happy about the surprise from a bank with a reputation for avoiding calamity better than its peers. Anand digs into exactly how big a deal $2 billion (perhaps $3 billion after all is said and done) is to a bank the size of JPMorgan. Beyond reputational harm and increased regulatory scrutiny, the hit makes up about 1% to 1.5% of its equity, 10% to 15% of annual earnings, and 40% to 60% of quarterly earnings. Anand believes JPMorgan can easily survive this, but the magnitude of the loss is not trivial.

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