Jpmorgan traders were lax on risks, says CEO

JPMORGAN Chase CE Jamie Dimon yesterday defended the intent of the portfolio behind the bank’s recent multibillion-dollar trading loss, telling a Senate hearing it was a genuine hedge that would have made the firm a lot of money in the event of another credit crisis.

Mr Dimon, appearing before the Senate banking committee in Washington, said well-intentioned traders had executed the hedge poorly, and that the bank’s chief investment office had failed to police the London office behind the trades. In the wake of the loss, Ina Drew, who headed the chief investment office, resigned.

Legislators have questioned whether the trades, that have yielded more than $2bn in losses so far, were a hedge or a speculative bet that was hidden from shareholders and regulators. Mr Dimon has warned that related losses could reach $3bn by the end of the year.

“This particular synthetic credit portfolio was intended to earn a lot of revenue if there was a crisis. I consider that a hedge,” Mr Dimon said. “What it morphed into, I will not try to defend.”

Mr Dimon’s closely watched appearance in Congress was repeatedly disrupted by protesters. One person yelled as the hearing started that Mr Dimon was “a crook”. Another group demanded an end to housing foreclosures blamed on manipulative banks.

Mr Dimon repeated during his testimony yesterday that the bank’s senior management failed by not detecting the London office’s spike in risk, and said the bank would consider taking back pay from certain executives once the banks’ board was done with its review.

“I would say it’s likely … there will be clawbacks,” Mr Dimon said.

Yesterday’s hearing followed Mr Dimon’s revelation during an unscheduled press conference last month that a hedging strategy in its London office had gone awry.

Mr Dimon had a month earlier dismissed as a “tempest in a teapot” news reports that a “London whale” in that office had amassed an outsized position that prompted hedge funds to bet against it.

He said yesterday he made that statement after attorneys and advisers told him they thought any problems in the London office were an isolated issue. “When I made that statement, I was dead wrong.”

SNL Financial analyst Nancy Bush said Mr Dimon’s testimony raised questions about how losses could have become so large if the trading strategy only started in January. Reuters