June 11 (Bloomberg) -- JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon plans to testify before Congress this week about his firm’s $2 billion trading loss. His Wall Street colleagues don’t understand why.
“Occasional losses are inevitable,” said Blackstone Group LP’s Stephen A. Schwarzman, 65, CEO of the largest private- equity firm. “Publicly excoriating JPMorgan serves no purpose except to reduce people’s confidence in the financial system.”
The loss has sliced $27 billion from JPMorgan’s market value since the May 10 disclosure, while triggering at least five federal probes and two Capitol Hill hearings scheduled with Dimon. It also renewed debate about whether curbs on trading by bankers were tightened enough after their wrong-way bets pushed the system to the brink of collapse in 2008.
Executives, lobbyists and analysts said in more than a dozen interviews that the public stir is an overreaction to a minor misstep.
“I kind of shrug,” said Bill Archer, 58, a former co- chairman of Goldman Sachs Group Inc.’s capital markets committee and now a partner at buyout firm Veronis Suhler Stevenson LLC in New York. “That’s just the way the world is.”
JPMorgan shares have dropped 17 percent since the New York-based bank, the largest in the U.S., disclosed the losses on credit derivatives held by its chief investment office. Dimon, 56, had shifted the unit from a conservative manager of unused cash into a profit center that bet on riskier assets, former employees have said. Some wagers became so large that they were driving prices in the $10 trillion market for and couldn’t easily be unwound, Bloomberg News reported.
Bigger or Safer
U.S. banks can be tiny and safe or big global competitors that make mistakes, Archer said. “There are wrongs that come with too-big-to-fail, but there are a lot of rights,” he said.
Executives who say the loss is small for a firm that earned $19 billion last year are missing the warning it represents about unwieldy large lenders, said Richard Sylla, a financial historian at New York University’s Stern School of Business.
“Even a great banker like James Dimon can’t really manage such a huge operation,” Sylla said. “They convince themselves that everything is fine because they’re making money.”
U.S. Comptroller of the Currency Thomas J. Curry told the Senate Banking Committee last week that the loss raises “questions about the adequacy and rigor” of the bank’s risk management. Treasury Secretary Timothy F. Geithner last month called it a “pretty significant risk-management failure.”