LONDON, June 8 (Reuters) - JPMorgan has made heavy losses from bad coal-price bets, traders dealing with the U.S. investment bank said, at a time when proprietary trading at deposit-taking banks faces increased regulatory scrutiny.
In recent months, JPMorgan has aggressively bet on the unusual discount of coal in Europe to South African coal, but was caught out when demand in Europe picked up and the discount narrowed, they added, confirming a recent press report.
Coal delivered into Europe is normally more expensive than that bought on a free on board (FOB) basis in South Africa because the European price reflects the cost of shipment.
"It was the implied freight which racked up the losses. We think around $175 million loss in April and another big loss in May," said a source at a large European utility, which is an active player on the coal swaps market.
The story was first reported by the New York Post, which said JPMorgan may have been hit by a loss of $250 million this quarter, due to wrong bets on coal.
JPMorgan loses hundreds of millions in wrong coal bet
I'm guessing some heads are going to be cut off, but traders in investment banks will remain traders in investment banks: face they win, tail the bank loses — unless they are not bailed out and collapse, and risk taking starts be considered as actual risk taking and not one-sided bets.