People let down by JPMorgan on credit trades
Dimon Says JPMorgan ‘Let People Down’ on Credit Trades
By Dawn Kopecki and Phil Mattingly – Jun 12, 2012 2:00 PM GMT-0700
JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said his traders didn’t understand the risk they took on credit derivatives and hurt the bank.
“This portfolio morphed into something that, rather than protect the firm, created new and potentially larger risks,” Dimon said in prepared remarks ahead of his appearance tomorrow before the Senate Banking Committee. “We have let a lot of people down, and we are sorry for it.”
Lawmakers plan to question Dimon at hearings this week and next about the bank’s losses in its chief investment office after he initially called April news reports about the trades “a complete tempest in a teapot.” Shares of the bank, the biggest in the U.S., have dropped 17 percent since Dimon disclosed the mounting losses May 10, lopping about $26.5 billion from the firm’s market value.
“CIO’s traders did not have the requisite understanding of the risks they took” on bets that were supposed to hedge credit risk, Dimon said. “When the positions began to experience losses in March and early April, they incorrectly concluded that those losses were the result of anomalous and temporary market movements.”
Dimon, who’s also set to face the House Financial Services Committee on June 19, finds himself in the middle of a renewed debate about whether curbs on trading by deposit-taking banks are being tightened enough after mortgage bets pushed the financial system to the brink of collapse four years ago.
Government investigations of JPMorgan include the Federal Reserve’s study of internal oversight, the Office of the Comptroller of the Currency’s look into trading, and the Securities and Exchange Commission’s examination of why the bank changed internal risk gauges this year. The Department of Justice and the Commodity Futures Trading Commission also are conducting inquiries.
Investors and bankers, including Dimon, have speculated that the loss may hurt efforts to soften restrictions imposed by the 2010 Dodd-Frank Act, including the law’s so-called Volcker rule, which limits lenders from making bets with their own money and was designed to head off a repeat of the financial crisis.
“The lessons learned from the recent failures in risk management at JPMorgan Chase will be an important input into efforts to design the Dodd-Frank Act reforms including a strong Volcker rule,” U.S. Treasury Department Deputy Secretary Neal Wolin told the committee last week.
“When we make mistakes, we take them seriously and often are our own toughest critic,” Dimon said. “While we can never say we won’t make mistakes — in fact, we know we will — we do believe this to be an isolated event.”