JPMorgan Chase & Co. Chief Executive Jamie Dimon on Wednesday, in front of a panel of lawmakers, regretted the firm’s $2 billion loss, but kept his foot on the pedal in arguing against implementing the controversial Volcker Rule.
Dimon, who has been under fire from investors and lawmakers for his company’s hedging loss disclosed in April, testified in front of the Senate Banking Committee Wednesday, where he faced a barrage of questions from congressional lawmakers.
Banking Committee Chairman Sen. Tim Johnson called JPMorgan’s strategy “an out-of-control trading strategy with little to no risk controls,” in an opening speech.
Speaking of the $2 billion-plus, loss, Dimon said, “This portfolio morphed into something that, rather than protect the firm, created new and potentially larger risks,” according to his prepared remarks.
“We have let a lot of people down, and we are sorry for it.”
The loss came from the firm’s London-based Chief Investment Office (CIO), which has been immensely profitable in the past. The trades, according to the firm, were to act as hedges.
Dimon blamed the loss on CIO staff, stating, “When the positions began to experience losses in March and early April, they incorrectly concluded that those losses were the result of anomalous and temporary market movements.” In reality, Dimon said that the risk models the firm had recently changed to, omitted certain aspects of risk, which in this case, failed to raise any red flags of potential losses.
In addition, he said that the firm’s risk committee had been in transition at the time, and conceded that the CIO department should have “gotten more scrutiny from both senior management and the firmwide risk control function.”
Dimon has also appointed new executives to head up the CIO department, and said that the bank would look to “claw back” certain compensation of responsible individuals.
During the hearing, Democratic Sen. Robert Menendez said that while the $2 billion loss was manageable for a firm of JPMorgan’s size, if the loss were hypothetically $50 billion, it would cause a run on the bank and JPMorgan’s woes suddenly would become the woes of U.S. government and the taxpayers.
Dimon remains critical of the controversial Volcker Rule, slated to be in effect starting in July, which would put an end to most proprietary trading at banks, which also take deposits. Admitting that the Volcker Rule “may very well have stopped part of what the portfolio morphed into,” he is against implementation of the rule because it is difficult to delineate proprietary trading from hedging, which is allowed under Volcker.
Wall Street apparently was happy with Dimon’s testimony, as traders sent banking shares higher on Wednesday despite an overall drop in U.S. stocks. Dimon said on Wednesday that he expects the current quarter to be profitable for JPMorgan.
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