JPMorgan Chase & Co, the biggest US bank by assets, said it suffered a trading loss of at least $2 billion from a failed hedging strategy, a shock disclosure that hit financial stocks and the reputation of the bank and its CEO, Jamie Dimon.

For a bank viewed as a strong risk manager that went through the financial crisis without reporting a loss, the errors are embarrassing, especially given Dimon's public criticism of the so-called Volcker rule to ban proprietary trading by big banks.

"This puts egg on our face," Dimon said, apologising on a hastily called conference call with stock analysts. He conceded the losses were linked to a Wall Street Journal report last month about a trader, nicknamed the 'London Whale', who, the report said, amassed an outsized position which hedge funds bet against.

JPMorgan said in a filing with the Securities and Exchange Commission that since end-March, its chief investment office has had significant mark-to-market losses in its synthetic credit portfolio - these typically include derivatives in a way intended to mimic the performance of securities.

While other gains partially offset the trading loss, the bank estimates the business unit with the portfolio will post a loss of $800 million in the current quarter, excluding private equity results and litigation expenses. The bank previously forecast the unit would make a profit of about $200 million.

"It could cost us as much as $1 billion or more," in addition to the loss estimated so far, Dimon said. "It is risky and it will be for a couple quarters."     

The dollar loss, though, could be less significant than the hit to Dimon and the reputation of a bank which was strong enough to take over investment bank Bear Stearns and consumer bank Washington Mutual when they collapsed in 2008.

JPMorgan had $2.32 trillion of assets supported by $190 billion of shareholder equity at the end of March - an equity  ratio of almost 13 percent, four times the industry mean and ahead of 10-11 percent at Citigroup and Bank of America Corp - and has been earning more than $4 billion each quarter, on average, for the past two years.

"Jamie has always styled himself as one of the kings of Wall Street," said Nancy Bush, a longtime bank analyst and contributing editor at SNL Financial. "I don't know how this went so bad so quickly with his knowledge and aversion to risk."     

JPMorgan shares fell almost 7 percent after the closing bell and dragged other financial shares lower, with Citigroup down 3.6 percent and Bank of America down 2.6 percent. FBR Capital Markets analyst Paul Miller cut his target for the stock to $37 from $50 in response to the disclosures. The shares were at $40.74 before the news.

Dimon said he still believes in his arguments against the Volcker rule. The problem at JPMorgan, he said, was with the execution of the hedging strategy, which "morphed over time" and was "ineffective, poorly monitored, poorly constructed and all of that."     

On the call, Dimon said he wouldn't take questions about specific people or their specific trading strategies. But he indicated that some people may lose their jobs as executives sort out what when wrong. "All appropriate corrective action will be taken as necessary in the future," he said. - Reuters