By Dawn Kopecki, Steven Sloan and Phil Mattingly - Jun 20, 2012 1:47 AM GMT+0700
JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon told U.S. House members that he complied with disclosure rules in warning investors about changes that contributed to the bank’s trading loss of at least $2 billion.
Jamie Dimon, chief executive officer of JPMorgan Chase & Co., speaks during a Senate Banking Committee hearing in Washington, D.C. Photographer: Andrew Harrer/Bloomberg
Thomas Curry, comptroller of the U.S. currency, arrives to a House Financial Services Committee hearing in Washington, D.C. on, June 19, 2012. Photographer: Andrew Harrer/Bloomberg
Scott Alvarez, general counsel with the board of governors of the U.S. Federal Reserve, listens during a House Financial Services Committee hearing in Washington, D.C. on June 19, 2012. Photographer: Andrew Harrer/Bloomberg
Mary Schapiro, chairman of the U.S. Securities and Exchange Commission (SEC), left to right, Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission (CFTC), Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corp. (FDIC), and Scott Alvarez, general counsel with the board of governors of the U.S. Federal Reserve, testify during a House Financial Services Committee hearing in Washington, D.C. on June 19, 2012. Photographer: Andrew Harrer/Bloomberg
“We disclosed what we knew when we knew it,” Dimon told lawmakers today at a House Financial Services Committee hearing in Washington that lasted more than four hours.
It was Dimon’s second appearance on Capitol Hill in less than a week to explain how the firm lost control of its derivatives trades. Securities and Exchange Commission Chairman Mary Schapiro, speaking from the same witness table earlier, said the agency has a “wide panoply” of penalties at its disposal in pursuing sanctions against JPMorgan. The bank could pay penalties if investigators find that it violated disclosure or other rules, she said.
Since Dimon announced the loss on May 10, investors and regulators have questioned JPMorgan’s disclosures of changes to its “value at risk” or VaR calculation. Dimon told investors on May 10 that the company used a new model, which later proved to be “inadequate,” to calculate VaR some time during the first quarter.
He told lawmakers today the the model change didn’t directly cause the loss.
“It may have aggravated what happened,” he said. “I wouldn’t say it was the cause of what happened.”
VaR is a measure of how much a company estimates it could lose on securities on 95 percent of days.
Loss Growing
Dimon has warned that the $2 billion loss could balloon as the bank unravels some of its troubled trades. He told lawmakers that he won’t provide an update on the loss until the bank releases its second quarter earnings on July 13.
As he testified about losses centered in London, Dimon encouraged Congress to limit the international reach of swaps regulations required under the Dodd-Frank Act.
“If JPMorgan overseas operates under different rules than our foreign competitors, we can no longer provide the best products and services to our U.S. clients or our foreign clients,” Dimon said. “They will go elsewhere if we can’t give them the best possible deal.”
The Commodity Futures Trading Commission, the main U.S. derivatives regulator, is poised to propose guidance on June 21 that would extend swaps rules to foreign branches and subsidiaries of JPMorgan, Goldman Sachs Group Inc., Citigroup Inc. and other U.S. banks.
Senate Contrast
When Dimon appeared before the Senate Banking Committee on June 13, he was cordially received and asked his opinion on subjects including the European debt crisis and how U.S. lawmakers should resolve the so-called fiscal cliff at the end of the year. Today’s hearing was more contentious.
Representative Stephen Lynch, a Massachusetts Democrat, pressed House Financial Services Committee Chairman Spencer Bachus, an Alabama Republican, to require Dimon to testify under oath. Bachus declined, saying it wasn’t the committee’s tradition to require witnesses to deliver sworn testimony.
JPMorgan’s Lobbying
Dimon didn’t hesitate to push back against lawmakers who criticized the bank’s lobbying or size. He said big banks like JPMorgan provide loans for homeowners and businesses of all sizes.
“I assume you want us to do that,” he said. “We’re the biggest small, or one of the biggest small business lenders in the United States. We raised four or five hundred billion dollars for the biggest American corporations. We bank some of those corporations in 20 countries around the world.”
“That’s what we do,” he said.
Representative Maxine Waters, a California Democrat, asked Dimon to explain why JPMorgan has lobbied against provisions of the 2010 Dodd-Frank Act which overhauled financial regulation. Dimon has been especially outspoken in his opposition to the so- called Volcker rule, which bans banks from engaging in most proprietary trading.
“Lobbying is a constitutional right and we have a right to have our voice heard,” Dimon said.
Dimon said it wasn’t necessary, however, for his voice to be heard in the boardroom of the Federal Reserve Bank of New York, where he is a director. Senator Bernie Sanders, a Vermont Independent, introduced legislation on May 22 that would ban employees of bank holding companies or other firms regulated by the Fed from serving on regional Fed bank boards.
Dimon reminded lawmakers that Congress is responsible for writing the laws that govern the central bank and said his role at the New York Fed is limited. He doesn’t vote on the New York Fed’s president or get involved in supervision, he said.
“It’s more of an informational advisory group,” he said.
Regulators Grilled
At the start of the hearing, the heads of the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Securities and Exchange Commission and CFTC and a senior Federal Reserve official were grilled over how they could have missed the trading debacle.
“Just as JPMorgan should be and is being held accountable for its risk management failures, accountability must also be demanded of the federal regulators who oversee the bank’s activities,” Bachus said.
In the wake of the loss, Comptroller of the Currency Thomas J. Curry said his agency is reviewing its staffing inside JPMorgan’s London operations, where the trades under scrutiny occurred.
“We will use our experience here, our review of JPMorgan Chase, to reevaluate the numbers and strength of the personnel in our London office,” he said.
To contact the reporters on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net; Dawn Kopecki in Washington at dkopecki@bloomberg.net; Steven Sloan in Washington at ssloan7@bloomberg.net
To contact the editors responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net; David Scheer at dscheer@bloomberg.net
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