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 bank spokeswoman declined to comment, although Dimon has said the total paper trading losses will be volatile depending on day-to-day market conditions.
The Federal Reserve is examining the scope of the 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 underway.
The bank’s health 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.
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, Dimon did not definitively rule out cutting the dividend, although he said that he ‘‘hoped’’ it would not be cut.
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.
What’s more, the chief investment office earned more than $5 billion in the past three years, which leaves it ahead overall.
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, specialists 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.’’