JPMorgan Chase & Co. (JPM), the largest U.S. bank, reported a $4.4 billion trading loss in its chief investment office, bigger than analysts estimated, that helped drive second-quarter profit down 9 percent. 
 
 Net income fell to $4.96 billion, or $1.21 a share, from $5.43 billion, or $1.27, in the same period a year earlier, the New York-based company said today in a statement. Six analysts surveyed by Bloomberg estimated the CIO trading loss at $4 billion. The company also restated first-quarter earnings, reducing net income by $459 million, and used securities gains and an $800 million accounting benefit to help boost profit. 
 
 The trading loss may complicate efforts by Chief Executive Officer Jamie Dimon, 56, to restore investor confidence after losing $39.7 billion in market value since April 5, when Bloomberg News first reported that the company had amassed an illiquid book of credit derivatives at the London unit. The firm also is being probed over the possible gaming of U.S. energy markets and was subpoenaed in global investigations of interest- rate fixing in London. 
 
 “The restatement is not good, and at first glance, the numbers are so-so,” said Paul Miller, a former examiner for the Philadelphia Federal Reserve Bank and analyst at FBR Capital Markets Corp. in Arlington, Virginia. 
 
 JPMorgan rose to $34.79 in New York trading at 7:36 a.m. from $34.04 yesterday. The shares were down 2.4 percent this year through yesterday. 
 
 Analysts’ Estimates 
 
 Second-quarter net income excluding the effect of accounting adjustments known as DVA was $1.09 a share. Excluding DVA, loan-loss reserve reductions and a Bear Stearns-related recovery, profit was 67 cents. Analysts surveyed by Bloomberg had estimated adjusted earnings per share of 76 cents. 
 
 In a departure from his customary earnings-day conference call, Dimon is meeting analysts in person for two hours starting at 7:30 a.m. today at the bank’s New York headquarters to field questions about the loss and what he’s doing to contain the damage. 
 
 Dimon dismissed reports about the London operation as a “tempest in a teapot” when the bank reported first-quarter earnings on April 13. He reversed course less than four weeks later, disclosing a $2 billion loss that he said could grow to $3 billion or more during the quarter. 
 
 Securities Sales 
 
 JPMorgan said May 10 that it had taken $1 billion in profits from securities sales in the CIO to mitigate the trading loss and planned more asset sales if needed to offset the damages, which was caused by a wrong-way bet on credit derivatives by London trader Bruno Iksil. Dimon hired Iksil’s boss, London CIO chief Achilles Macris, in 2006 with a mandate to generate profits. Macris and Iksil eventually built up a position in credit derivatives that was so large it couldn’t be unwound without roiling markets. 
 
 JPMorgan said today that it recently discovered information that suggests some individuals at the company may have been trying to avoid showing the full amount of the losses. All employees working on synthetic credit derivatives in the CIO have left the bank, the company said today. 
 
 “We have already completely overhauled CIO management and enhanced the governance standards within CIO,” Dimon said in the statement. “We believe these events to be isolated to CIO, but have taken the opportunity to apply lessons learned across the firm.” 
 
 The company said the CIO loss may increase by $800 million to as much as $1.6 billion in an extreme scenario. 
 
 Ina Drew 
 
 Chief Investment Officer Ina Drew, 55, retired four days after the loss was disclosed with about $57.5 million in stock, pension and other pay, according to regulatory filings and estimates from consulting firm Meridian Compensation Partners LLC. About $21.5 million of that money, based on the May 14 closing price, would have been automatically forfeited if she had been fired for cause. 
 
 JPMorgan said today it will claw back compensation from individuals responsible for the losses on a case-by-case basis. 
 
 Dimon is also grappling with historically low interest rates that have compressed profit margins on lending as well as yields on investments. Moshe Orenbuch, of Credit Suisse Group AG, was among analysts who lowered earnings projections for banks amid weak trading revenue and market turmoil caused by Europe’s sovereign debt crisis. 
 
 Corporate bond issuance dropped almost 19 percent in the second quarter from $927 billion a year earlier as companies backed away from plans to raise capital. 
 
 Europe Damper 
 
 “Europe continues to put a damper on just about everything,” said Nancy Bush, an analyst and contributing editor at SNL Financial LC, a research firm based in Charlottesville, Virginia. 
 
 Consumer credit is one bright spot for the industry as delinquency rates decline. Fewer borrowers fell behind on their credit-card payments in May, 2.35 percent, from 3.09 percent a year earlier, according to data compiled by Bloomberg. Government programs and mortgage rates near record lows have also helped fuel higher volume and bigger profits on home loans. 
 
 JPMorgan set aside $335 million more toward its litigation costs during the second quarter. Dimon previously told shareholders that the company would be making as much as $24 billion in annual profit if it weren’t for all of its mortgage losses. 
 
 Revenue fell 16 percent to $22.9 billion from $27.4 billion during the second quarter of last year. Revenue at the investment-banking unit fell 7 percent to $6.77 billion from $7.31 billion last year. 
 
 Fixed Income 
 
 Fixed-income and equity-markets revenue excluding accounting adjustments dropped to $4.54 billion from $5.36 billion a year earlier, the company said. 
 
 U.S. banks are in the middle of the industry’s worst two years of revenue growth since the Great Depression, according to Mike Mayo, an analyst with independent research firm CLSA Ltd. in New York. 
 
 Retail banking, which includes home loans and checking accounts, earned $2.27 billion, up from $383 million a year earlier. The bank’s net interest margin, a measure of lending profitability, declined to 2.47 percent from 2.72 percent a year earlier. 
 
 JPMorgan benefited from gains in mortgage lending as low interest rates and federal incentive programs encouraged homeowners to refinance. Mortgage fees and related revenue totaled $2.27 billion, up from $1.1 billion a year earlier. 
 
 Unemployment Rate 
 
 Demand for loans rose as the unemployment rate fell to 8.2 percent from 9.1 percent in the same period of 2011. Mortgage originations industrywide probably climbed 28 percent to $372 billion in the second quarter from the same period last year, driven by refinancings spurred by federal programs, according to the Mortgage Bankers Association. 
 
 Fewer consumers fell behind on their credit-card payments in the second quarter compared with the same period in 2011. Loans at least 30 days overdue, a signal of future write-offs, fell to 2.14 percent from 2.98 percent in 2011. Write-offs dropped to 4.35 percent from 5.82 percent the prior year. 
 
 To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.com. 
 
 To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net ||||| Simon Dawson/Bloomberg News 
 
 The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank’s initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses. 
 
 When Jamie Dimon, JPMorgan’s chief executive, announced the losses last Thursday, he indicated they could double within the next few quarters. But that process has been compressed into four trading days as hedge funds and other investors take advantage of JPMorgan’s distress, fueling faster deterioration in the underlying credit market positions held by the bank. 
 
 A spokeswoman for the bank declined to comment, although Mr. Dimon has said the total paper trading losses will be volatile depending on day-to-day market fluctuations. 
 
 Related Links Graphic: A Complex Strategy That Backfired 
 
 The Federal Reserve is examining the scope of the growing losses and the original bet, along with whether JPMorgan’s chief investment office took risks that were inappropriate for a federally insured depository institution, according to several people with knowledge of the examination. They spoke on the condition of anonymity because the investigation is still under way. 
 
 The overall health of the bank remains strong, even with the additional losses, and JPMorgan has been able to increase its stock dividend faster than its rivals because of stronger earnings and a more solid capital buffer. 
 
 Still, the huge trading losses rocked Wall Street and reignited the debate over how tightly giant financial institutions should be regulated. Bank analysts say that while the bank’s stability is not threatened, if the losses continue to mount, the outlook for the bank’s dividend will grow uncertain. 
 
 The bank’s leadership has discussed the impact of the losses on future earnings, although a dividend cut remains highly unlikely for now. In March, the company raised the quarterly dividend by 5 cents, to 30 cents, which will cost the bank about $190 million more this quarter. 
 
 A spokeswoman for the bank said a dividend cut has not been discussed internally. 
 
 At the bank’s annual meeting in Tampa, Fla., on Tuesday, Mr. Dimon did not definitively rule out cutting the dividend, although he said that he “hoped” it would not be cut. 
 
 John Lackey, a shareholder from Richmond, Va., who attended the meeting precisely to ask about the dividend, was not reassured. “That wasn’t a very clear answer,” he said of Mr. Dimon’s response. “I expect that shareholders are going to suffer because of this.” 
 
 Analysts expect the bank to earn $4 billion in the second quarter, factoring in the original estimated loss of $2 billion. Even if the additional trading losses were to double, the bank could still earn a profit of $2 billion. 
 
 And many analysts and investors remain optimistic about the bank’s long-term prospects. 
 
 Glenn Schorr, a widely followed analyst with Nomura, reiterated on Wednesday his buy rating on JPMorgan shares, which are down more than 10 percent since the trading loss became public last week. 
 
 What’s more, the chief investment office earned more than $5 billion in the last three years, which leaves it ahead over all, even given the added red ink. 
 
 But the underlying problem is that while these sharp swings are expected at a big hedge fund, they should not be occurring at a bank whose deposits are government-backed and which has access to ultralow cost capital from the Federal Reserve, experts said. 
 
 “JPMorgan Chase has a big hedge fund inside a commercial bank,” said Mark Williams, a professor of finance at Boston University, who also served as a Federal Reserve bank examiner. “They should be taking in deposits and making loans, not taking large speculative bets.” 
 
 Not long after Mr. Dimon’s announcement of a dividend increase in March, the notorious bet by JPMorgan’s chief investment office began to fall apart. 
 
 Traders at the unit’s London desk and elsewhere are now frantically trying to defuse the huge bet that was built up over years, but started generating erratic returns in late March. After a brief pause, the losses began to mount again in late April, prompting Mr. Dimon’s announcement on May 10. 
 
 Beginning on Friday, the same trends that had been causing the losses for six weeks accelerated, since traders on the opposite side of the bet knew the bank was under pressure to unwind the losing trade and could not double down in any way. 
 
 Another issue is that the trader who executed the complex wager, Bruno Iksil, is no longer on the trading desk. Nicknamed the London Whale, Mr. Iksil had a firm grasp on the trade — knowledge that is hard to replace, even though his anticipated departure is seen as sign of the bank’s taking responsibility for the debacle. 
 
 “They were caught short,” said one experienced credit trader who spoke on the condition of anonymity because the situation is still fluid. The market player, who does not stand to gain from JPMorgan’s losses and is not involved in the trade, added, “this is a very hard trade to get out of because it’s so big.” 
 
 He estimated that the initial loss of just over $2 billion was caused by a move of a quarter percentage point, or 25 basis points, on a portfolio with a notional value of $150 billion to $200 billion — in other words, the total value of the contracts traded, not JPMorgan’s exposure. In the four trading days since Mr. Dimon’s disclosure, the market has moved at least 15 to 20 basis points more against JPMorgan, he said. 
 
 The overall losses are not directly proportional to the move in basis points because of the complexity of the trade. Many of the positions are highly illiquid, making them difficult to value for regulators and the bank itself. 
 
 In its simplest form, traders said, the complex position assembled by the bank included a bullish bet on an index of investment-grade corporate debt, later paired with a bearish bet on high-yield securities, achieved by selling insurance contracts known as credit-default swaps. 
 
 A big move in the interest rate spread between the investment grade securities and risk-free government bonds in recent months hurt the first part of the bet, and was not offset by equally large moves in the price of the insurance on the high yield bonds. 
 
 As the credit yield curve steepened, the losses piled up on the corporate grade index, overwhelming gains elsewhere on the trades. Making matters worse, there was a mismatch between the expiration of different instruments within the trade, increasing losses. 
 
 The additional losses represent a worsening of what is already the most embarrassing misstep for JPMorgan since Mr. Dimon became chief executive in 2005. No one has blamed Mr. Dimon for the trade, which was under the oversight of the head of the chief investment office, Ina Drew, but he has repeatedly apologized, calling it “stupid” and “sloppy.” 
 
 Ms. Drew resigned Monday and more departures are anticipated. ||||| JPMorgan Chase slashed CEO Jamie Dimon's bonus by 53%, citing the fallout from the bank's so-called London Whale trading losses. 
 
 Dimon will take home $11.5 million, including a $10 million bonus. Last year, he was the best paid bank CEO with a $23.1 million pay package that included a $21.5 million bonus. 
 
 JPMorgan's board also decided to push back Dimon's eligibility to sell $79 million of JPMorgan's stock for 18 months. Roughly 2 million shares were eligible for vesting on Jan. 22. 
 
 "As Chief Executive Officer, Mr. Dimon bears ultimate responsibility for the failures that led to the losses in CIO and has accepted responsibility for such failures," the board said in regulatory filing. 
 
 At the same time, the board also noted that JPMorgan has reported record profits for three consecutive years and praised what they called Dimon's forceful response to the trading problems. 
 
 Related: Why is JPMorgan's board unchanged? 
 
 JPMorgan reported fourth-quarter net income of $5.7 billion, or $1.39 a share, beating forecasts, while revenue of $24.4 billion was in line with estimates. 
 
 The bank's strong results were driven by a sharp uptick in new mortgages, with mortgage originations increasing 33% year-over year. Fees from mortgages jumped 181% from the prior year. 
 
 While the housing recovery is underway, Dimon said on an analyst call that he expects mortgage revenue to bounce around over the next several quarters. 
 
 Revenues in all of the bank's business line, including investment banking and consumer banking, increased from last year. Investment banking fees jumped 52% in the fourth quarter. 
 
 JPMorgan reduced its staff by 1,500, or roughly 0.5%, to end the year with 258,965 employees. Even with the cuts, compensation expenses jumped 12% from the prior year. 
 
 For the full year, the bank earned $21.3 billion, or $5.20 a share, on revenue of $99.9 billion 
 
 Related: Hey Wall Street, get ready for more layoffs 
 
 Still, investors weren't thrilled by the bank's results. Shares of JPMorgan Chase (JPM) straddled the breakeven line Wednesday. So far this year, the bank's stock has gained more than 5%, after rallying 35% in 2012. 
 
 Going forward, Dimon said JPMorgan expects to buy back less stock in the coming quarters to shore up its capital reserves. The bank still plans to buy back up to $3 billion of stock during the current quarter, but will ask regulators for permission to repurchase fewer shares after that. 
 
 Since the financial crisis, the largest banks have been required to prove to the Federal Reserve that they have sufficient capital reserves to withstand another financial crisis. DImon said that the bank will spend this year building up its reserve related to international regulatory guidelines known as Basel III. 
 
 JPMorgan managed to generate profits during each quarter of 2012, despite recording a $6.2 billion loss from the so-called London Whale trade -- the massive bet on credit derivatives made by one of the bank's London units that went terribly wrong. 
 
 Since the trading losses were revealed, JPMorgan has shaken up its executive ranks and appointed a new chief financial officer. The bank has also fired executives and traders responsible for the losses and has said that their pay is subject to clawbacks. 
 
 In October, the bank filed suit against Javier Martin-Artajo, the former boss of Bruno Iksil, the trader who made the bad bets and came to be known as the "London Whale." A source familiar with the case said Wednesday that the suit had been settled, with Martin-Artajo agreeing to return some of his pay via the clawback mechanism in his contract. 
 
 Martin-Artajo could not be reached for comment. The news was reported earlier by Reuters. 
 
 The fallout from the London Whale continued this week, when the Federal Reserve and the Office of the Comptroller of the Currency ordered JPMorgan to improve its risk management procedures. 
 
 In November, the bank said other agencies -- including the Department of Justice and the Securities and Exchange Commission -- were also investigating the matter. 
 
 On a call with journalists early Wednesday, Dimon said he expects it to be "non-issue" very soon. "We're getting near the end of it," he said. 
 
 JPMorgan is the second major bank to report earnings. Wells Fargo (WFC) kicked off bank earnings season last Friday and Goldman Sachs (GS) reported fourth-quuarter profits that topped expectations early Wednesday. 
 
 Bank of America (BAC) and Citigroup (C) will release results Thursday morning, and Morgan Stanley (MS) reports early Friday. 
 
 CNNMoney's James O'Toole contributed to this report.
– JPMorgan reported a $4.4 billion trading loss this morning, a figure far worse than analysts were expecting, in the wake of the "London Whale" fiasco. That drove the bank's earnings down 8.7%, but still left it with $4.96 billion in profit for the second quarter, down only a bit from its $5.43 billion mark a year ago, the Wall Street Journal reports. "We are not proud of this moment, but we are proud of the company," Jamie Dimon said. "We're not making light of this error, but we do think it's an isolated event." At the same time, however, the bank said it would soon revise its first-quarter results southward, thanks to "recently discovered information that raises questions about the integrity of the trader marks and suggests that certain individuals may have been seeking to avoid showing the full amount of losses." Analysts tell Bloomberg that the larger-than-expected losses will leave the bank struggling to restore investor confidence. "The reputation problem will just get worse," one analyst said.