UPDATE 2-JPMorgan hit by big coal trading losses-traders

* Bank was betting on coal swap spreads – traders

* Traders estimate losses of more than $175 mln

* New York Post says JPMorgan suffered $250 mln loss

* JPMorgan says Post story is “not right”

(Adds confirmation from traders, previously NEW YORK)

By Jackie Cowhig

LONDON, June 8 (BestGrowthStock) – JPMorgan Chase & Co (JPM.N: ) 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.

Kristin Lemkau, a JPMorgan spokeswoman in New York, said the
New York Post story was incorrect, and declined to comment
further. A spokeswoman in London declined to comment, saying the
bank did not speak about trading positions.

JP Morgan shares were 1 percent higher at $37.09 at 1521
GMT, outperforming the Dow Jones blue-chip index (.DJI: ), which
was 0.12 percent stronger.

The impact of the trading loss would be minimal for
JPMorgan, the New York Post said, but would provide ammunition
to politicians, who advocate the curbing of such proprietary
trading by deposit-taking banks.

The coal swaps and physical markets are extremely illiquid
and immature compared with the oil market, and trading
counterparties tend to know each other well because there is
very little central clearing and settlement.

Coal can be vulnerable to aggressive trading, but its
direction can be hard to predict, because the market moves
rapidly from physical glut to tightness.

JPMorgan had been selling European physical coal delivered
into Amsterdam-Rotterdam-Antwerp and API2 coal swaps, which
settle against physical prices, hoping to maintain the
unprecedented spread between the European prices and the API4
South African swaps, traders said.

But it was caught out as the discount of API2 to API4 —
known as the implied freight because it normally indicates just
shipping costs — had shrunk to a few dollars at most, they
said.

API4 coal swaps settle against the API4 physical index which
is a benchmark for FOB Richards Bay South African coal cargo
prices. API2 swaps settle against the API2 physical index, the
delivered Europe coal price.

Stock Research

(Additional reporting by Sakthi Prasad in Bangalore and Elinor
Comlay in New York; Editing by Douwe Miedema and Simon Jessop in
London)

UPDATE 2-JPMorgan hit by big coal trading losses-traders