JP Morgan default swaps hit as bank receives double-downgrade

JP Morgan warned its third-quarter earnings will be "well below" second-quarter operating profit, blaming bad loans to the telecom sector and a sharp drop in revenue as a result of weak financial markets.

Late yesterday, both Standard & Poor's and Fitch Ratings downgraded JP Morgan's debt rating. Fitch cited "the sustained weakness in the core operating performance" of a number of the bank's important businesses, as well as "challenging conditions" that "are expected to continue" as the rationale behind its downgrade.

Five-year senior credit default swaps for JP Morgan traded as high as 100bp-mid yesterday, up from 74bp-mid at close on Monday, according to credit derivatives brokers GFInet. The credit appeared on GFI’s ‘most active list’ for yesterday’s deals.

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