Dimon also didn’t address changes made earlier this year to a company measurement known as value-at-risk, or VaR, that underestimated the potential for losses. The switch -- and the timing of the firm’s disclosures -- are the focus of an inquiry by the Securities and Exchange Commission, agency chairman Mary Schapiro told the Senate panel on May 22.
Other government investigations of New York-based JPMorgan include a study of internal oversight by the Federal Reserve, a probe of the trades by the Comptroller of the Currency, and additional inquiries by the Department of Justice and the Commodity Futures Trading Commission.
Dimon said that the risk committee structures and processes were not as robust in the CIO as they should have been. The division’s London team built up a book of credit derivatives that became so large by that employees couldn’t unwind it without roiling markets or incurring large losses.
Dimon said he feels “terrible” that the firm will lose shareholder money, yet defended the bank by saying lawmakers needed to put the losses “into perspective,” noting that no client, customer or taxpayer money was impacted. He said the second quarter would be “solidly profitable.”
Dimon explained that the bank instructed the CIO in December to reduce its risk-weighted assets to prepare for new international capital rules. Instead, the office in mid-January “embarked on a complex strategy that entailed adding positions that it believed would offset the existing ones,” Dimon said. The portfolio grew and the problem got worse.
Shares of the bank have dropped 17 percent from May 10, when Dimon disclosed the losses, through yesterday, lopping about $26.5 billion from the firm’s market value. The furor cost former Chief Investment Officer Ina Drew her job.
Senator Tim Johnson, the panel’s chairman, said in remarks prepared for the hearing that he expected Dimon to answer how the investment office, a unit designed to protect the company from risk, could lose billions of dollars instead.