June 13 (Bloomberg) -- U.S. senators preparing to hear testimony from JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said they will press him to explain what led to more than $2 billion in trading losses and will be looking closely at whether they need to tighten exemptions in the so-called Volcker rule.
U.S. Senator Jeff Merkley, the Oregon Democrat pushing for stronger restrictions on banks’ bets with their own money through proprietary trading, said this morning that JPMorgan took too much risk through a strategy the company described as hedging.
“Portfolio hedging is just a name for saying anything goes, and we’ll continue proprietary trading,” Merkley said in an interview on Bloomberg Television.
Merkley, who co-wrote the Volcker provision in the Dodd- Frank Act along with Senator Carl Levin of Michigan, has said that the draft rule released by regulators in 2011 had loopholes that would allow banks to maintain much of their proprietary trading operations.
“I want to know whether or not he is determined to continue pressing for loopholes in the Volcker rule so he can continue proprietary trading or whether he recognizes that really is a role for hedge funds that shouldn’t be subsidized by American taxpayers,” Merkley said.
In testimony prepared for the hearing, Dimon told Congress the bank let traders take risks they didn’t understand while he didn’t answer key questions about the losses.
[To read Dimon’s prepared testimony, click here.]
Dimon expressed regret over losses in the bank’s chief investment office, saying that its trading strategy was “poorly conceived and vetted” by senior managers who were “in transition” and not paying adequate attention.
“This portfolio morphed into something that, rather than protect the firm, created new and potentially larger risks,” Dimon said in the remarks ahead of his appearance today before the Senate Banking Committee. “We have let a lot of people down, and we are sorry for it.”
Dimon, 56, makes his first of two appearances on Capitol Hill to face lawmakers probing how the largest and most profitable U.S. bank, often praised for its “fortress” balance sheet, could have taken such risks after coming through the 2008 financial crisis largely unscathed. His prepared remarks left unanswered what he knew when about the trading strategy and losses that accelerated in March and April.