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Entries in Senate Banking Committee (3)

Wednesday
Jun132012

Jamie Dimon's Senate Testimony Puts Career on Line

Scott Eells/Bloomberg via Getty Images(WASHINGTON) -- When Jamie Dimon, head of JPMorgan Chase, appears Wednesday before the Senate Banking Committee to field questions about his bank's $2 billion-and-climbing trading loss, people who know him well say they have little doubt how he will respond.

He will display, they predict, the same traits -- attractive and not-so -- that have taken him, at age 56, to the pinnacle of the banking industry.

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 is watch, JPMorgan has grown to be the biggest U.S. bank in terms of market capitalization and assets under management.

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.

As for what Dimon may say in response to questions, one woman who advised him early in his career predicts, "He will speak from the heart."  He'll be candid, she says, forthright.  He won't mince words. "He's not coachable, not in the sense that he will listen to experts and then do what they tell him to do.  He's his own man.  I know that from my direct experience with him."

Like other former Dimon colleagues interviewed for this story, she requested to be nameless.

Patricia Crisafulli, one of Dimon's biographers, says, "He's known as a straight talker -- not just forthright but honest."  Her book, The House of Dimon: How JPMorgan's Jamie Dimon Rose to the Top of the Financial World depicts him as nothing if not direct.  With Dimon, Crisafulli writes, what you see is what you get.

That sometimes can include cocksureness, petulance and temper.

"I think very highly of him," says a Dimon colleague from the 1990s.  "There's no bulls**t about him.  People respect that.  But he's blunt to a fault -- rough around the edges.  Sometimes, he's too smart for his own good, finishing sentences for you, even when what he said wasn't what you had in mind.  He jumps to conclusions."

He jumped to a false one on April 13, when in a conference call with JPMorgan analysts, he peremptorily dismissed worries over trades made by JPMorgan's London office as "a tempest in a teapot."  That tempest, the Wall Street Journal reports, now stands to lash the bank with losses of $5 billion maybe more.

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 his 90s colleague, 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."

Says his former advisor, "He has a maniacal desire to have his hands on all the details. My guess is, he's truly beating himself up for what went wrong."

Copyright 2012 ABC News Radio

Tuesday
Jun122012

JPMorgan CEO to Testify Before Senate Committee: Traders Didn’t Understand Risk?

Scott Eells/Bloomberg via Getty Images(WASHINGTON) -- Jamie Dimon, chairman & CEO of JPMorgan Chase & Co., will testify Wednesday before the Senate Banking Committee on the now infamous trading loss that has reached about $3 billion.  A preview of the testimony reveals that he will again apologize for letting “a lot of people down,” but will say that traders in Chief Investment Unit “did not have the requisite understanding of the risks they took.”

He defends the bank’s multi-billion-dollar loss, saying:

  • CIO (the JPM unit where the loss happened) did something they shouldn’t have done and “as a result, we have let a lot of people down, and we are sorry for it.”
  • We have a new team handling things differently, reducing “the probability and magnitude of future losses.”
  • Adding that “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.”
  • Further, “our fortress balance sheet remains intact.”

In his prepared remarks, Dimon also answers in his own words -- what happened and what went wrong.

What Happened? In December 2011, as part of a firmwide effort in anticipation of new Basel capital requirements, we instructed CIO to reduce risk-weighted assets and associated risk. To achieve this in the synthetic credit portfolio, the CIO could have simply reduced its existing positions; instead, starting in mid-January, it embarked on a complex strategy that entailed adding positions that it believed would offset the existing ones. This strategy, however, ended up creating a portfolio that was larger and ultimately resulted in even more complex and hard-to-manage risks. This portfolio morphed into something that, rather than protect the Firm, created new and potentially larger risks. As a result, we have let a lot of people down, and we are sorry for it.

What Went Wrong? We believe now that a series of events led to the difficulties in the synthetic credit portfolio. Among them: CIO’s strategy for reducing the synthetic credit portfolio was poorly conceived and vetted. The strategy was not carefully analyzed or subjected to rigorous stress testing within CIO and was not reviewed outside CIO. In hindsight, CIO’s traders did not have the requisite understanding of the risks they took. 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, and therefore were likely to reverse themselves. The risk limits for the synthetic credit portfolio should have been specific to the portfolio and much more granular, i.e., only allowing lower limits on each specific risk being taken. Personnel in key control roles in CIO were in transition and risk control functions were generally ineffective in challenging the judgment of CIO’s trading personnel. Risk committee structures and processes in CIO were not as formal or robust as they should have been. CIO, particularly the synthetic credit portfolio, should have gotten more scrutiny from both senior management and the firm wide risk control function.

It’s sure to be an interesting day for Dimon, who will be the sole witness at the hearing.

Here is an excerpt of Chairman Tim Johnson, D-S.D., prepared remarks for the hearing titled “A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase?”:

“Today marks the two-month anniversary of Mr. Dimon’s ‘tempest in a teapot’ comments where he downplayed concerns from initial media reports of the company’s Chief Investment Office trades.  We later learned, however, it was an out-of-control trading strategy with little to no risk controls that cost the company billions of dollars.

I have said before, no financial institution is immune from bad judgment.  In Mr. Dimon’s own words, he later explained, ‘We made a terrible egregious mistake.  There’s almost no excuse for it…. We know we were sloppy.  We know we were stupid.  We know there was bad judgment…. [I]n hindsight, we took far too much risk.  The strategy we had was badly vetted.  It was badly monitored.  It should never have happened.’

So what went wrong? For a bank renowned for its risk management, where were the risk controls?  How can a bank take on ‘far too much risk’ if the point of the trades was to reduce risk in the first place?  Or was the goal really to make money? Should any hedge result in billions of dollars of net gains or losses, or should it be focused solely on reducing a bank’s risks?  As the saying goes, you can’t have your cake and eat it too.

Again it has been two months since he first publicly acknowledged the trades, so I expect Mr. Dimon to be able to answer tough, but fair questions. A full accounting of these events will help this Committee better understand the policy implications for a safer and stronger financial system going forward.”


Copyright 2012 ABC News Radio

Thursday
Mar012012

Bernanke Warns Banking Committee of Chronic Long-Term Unemployment

Alex Wong/Getty Images(WASHINGTON) -- Federal Reserve Chairman Ben Bernanke told senators Thursday that he is concerned that chronic long-term unemployment threatens to reduce the U.S.'s supply of skilled workers.
 
Bernanke says that more than 40 percent of America's unemployed -- 5.5 million people -- have been out of work for more than six months. He says that if the problem persists, more of the long-term unemployed will lose job skills and struggle to regain them.
 
But Chairman Bernanke said he does not expect that the recession will cause lasting damage to the U.S. economy’s ability to grow.
 
Testifying Thursday before the Senate Banking Committee, Bernanke said, "We do not see at this point that the very severe recession has permanently affected the growth potential of the U.S. economy, although we continue to monitor productivity gains and the like."

As he has done before, Bernanke warned Congress about the need to come up with a long-term plan to reduce the deficit. "The United States is on an unsustainable fiscal path looking out over the next couple of decades,” he said. “If we continue along that path, eventually we will face a fiscal and financial crisis that will be very bad for growth and sustainability.”

The Fed chairman told the Senators the economic recovery still has a ways to go. "The recovery is not yet complete, unemployment remains high, the rate of growth is modest,” he said.

As for housing, Bernanke said the market still remains a difficult area. "We are hoping for price stabilization. We think once people have gotten a sense that the housing markets have stabilized, they will be much more willing to buy and the banks will be more willing to lend,” Bernanke said. “But right now there is still uncertainly about where the housing market is going, which I think is troubling."

As the economy gets better, Bernanke said he expects interest rate to go higher. "At some point the economy will strengthen and the Fed may have to raise interest rates,” he told the committee. Eventually, interest rates will rise, he said: "We just don’t know when."

Copyright 2012 ABC News Radio







ABC News Radio