(WASHINGTON) — JPMorgan Chase CEO Jamie Dimon told the Senate Banking Committee that the risky trades that led to billions in losses were taken by traders who didn’t understand the risks. He called the bad trades an “isolated event” that won’t happen again.
The CEO said he was “dead wrong” when he dismissed a trading loss from the London office as a “tempest in a teapot” before he learned the bank made a $2 billion bad bet. He hinted that those responsible may have pay taken back from them.
Minutes before Dimon, 56, testified before committee, one audience member delayed the hearing on Capitol Hill in Washington, D.C., calling Dimon a “criminal” and “crook,” saying that small businesses can’t get loans. A group of protesters chanting, “Stop foreclosures now,” were escorted outside the Dirksen Office Building by Capitol Hill police.
Once the hearing began, Dimon told the committee he was misinformed about a strategy with a synthetic credit portfolio that was meant to hedge risks, but “ultimately resulted in even more complex and hard-to-manage risks.” This led to trades on May 10 that may actually have led to losses as high as $5 billion, according to the Wall Street Journal. A week later, the FBI said it opened a routine inquiry about the trading losses.
In a conference call on April 13, he peremptorily dismissed worries over the trades made by JPMorgan’s London office as “a tempest in a teapot.”
“When I had made that statement, I was dead wrong,” Dimon told the committee. He said he had “the right” to rely on information from the company’s chief investment officer, Ina Drew, and her office in London. “I was assured by them they thought this was an isolated small issue and that it was not a big problem,” Dimon said.
His lightning career has taken him from American Express to Citigroup (which he formed with his then-mentor, Sandy Weil, in 1998), to Banc One, where he became CEO in 2000. In 2004, when Banc One was purchased by JPMorgan, he became president of the combined company, then later CEO. On his watch, JPMorgan has grown to be the biggest U.S. bank in terms of market capitalization and assets under management.
Risky trades aren’t the biggest risks JPMorgan Chase faces, Dimon told the committee. “Dramatically rising interest rates and a global type of credit crisis,” he said. “Those are the two biggest risks we face.”
Sen. Charles Schumer, D-N.Y., asked Dimon to explain why the company’s own risk committee did not catch the risky strategy that led to the loss and what other risk committees could do alternatively.
“I think it would have been hard to capture it if management didn’t capture it,” he said. “To the extent that we were misinformed, they were misinformed…”
“It’s hard to have the unrealistic expectation to capture things like this,” he said.
Dimon said “the financial system is safer today than it was in ’07,” but he was hesitant to say that was due to regulations.
When Sen. Bob Corker, R-Tenn., pressed Dimon if regulatory systems have made systems safer, Dimon said, “I don’t know.”
In his prepared remarks, made available before the hearing, Dimon defended JPMorgan’s performance, even while admitting that the bank felt “terrible” for having lost some of its shareholders’ money.
“We will lose some of our shareholders’ money – and for that, we feel terrible – but no client, customer or taxpayer money was impacted by this incident,” he said.
Though Dimon since has castigated himself publicly for having misjudged the situation, shareholders, analysts and politicians have said they cannot understand how the normally indefatigable Dimon could have let a mistake this size occur.
Dimon insists that the full magnitude of the London trading risk was not known to him, and that he remained ignorant of key details until it was too late to prevent the loss. That surprises one of his colleagues from the 1990s, who thinks of Dimon as the ultimate detail guy: “What surprises me most in this whole debacle is that he really was a detail guy. Nothing slipped by him. My guess is he may have delegated too much and not have known. If he had, I don’t see how it could have reached this level of loss.”
Copyright 2012 ABC News Radio
Brian Stelter, CNN Money
Sarah Anderson, Deseret News
Sara Weber, Deseret News
Cristina Alesci Seth Fiegerman and Charles Riley, CNN