Testifying before a Senate committee on Wednesday, JPMorgan Chase CEO Jamie Dimon said he was “dead wrong” when he dismissed early reports of the bank’s $2 billion trading loss as “a tempest in a teapot.”
Last December, the bank introduced new models as part of a firm-wide effort to comply with additional Basel risk requirements.
Dimon admitted that the CIO’s success likely bred complacency, and that the portfolio’s oversight committee “while independent, wasn’t independent-minded enough, and should have challenged more frequently and more rigorously this particular synthetic credit portfolio.”
A number of senators also asked about the purpose of the hedge and exactly what it was hedging. Normally, a hedge is to protect losses in another area and only makes money if what it is hedging does poorly. When asked if the CIO unit was expected to be profitable, Dimon said, “Yes, it is supposed to earn revenue—this was supposed to earn profit if [something bad] happened.”
Much of the questioning focused on existing and proposed financial regulations, including Dodd-Frank and the accompanying Volcker Rule, which Dimon quipped “still isn’t written.” As a result, he said it will be very difficult to “make a bright line distinction between [proprietary trading] and hedging,” and added, “Every loan the bank makes is proprietary.”
The testimony took a brief detour into MF Global territory when Sen. Jon Tester (D-MT) asked Dimon about the events leading up to the broker’s November 2011 bankruptcy. When asked why it took so long for JPMorgan to release customer funds, he said the bank had to wait for the trustees to “finish their work” before it could release the funds. “We didn’t deliberately withhold the funds,” he said.
Dimon also is slated to testify before the House Financial Services Committee on June 19.