CEO Jamie Dimon Calls Volcker Rule 'Unnecessary'

June 13, 2012 -- JPMorgan Chase CEO Jamie Dimon told the Senate Banking Committee that the trades that led to billions in losses were placed by traders who didn't understand the risks they were taking, which could not have been prevented regulation. He called the bad trades an "isolated event" that won't happen again.

Jim Sinegal, director of financial services research at Morningstar, an investment firm, said the most "useful" part of the testimony was the continued discussion of the Volcker rule.

"I think the trade in question actually highlights the biggest difficulty with the rule -- classifying a bank's investment activity as prop trading, hedging, or other permissible activities," Sinegal said.

There weren't too many surprises in the testimony, Sinegal said, though "Dimon was opinionated and charasmatic as usual, which helps his cause."

Since the financial crisis, lawmakers have grappled with the difficulty in managing and regulating large banks.

On Tuesday, senators asked Dimon to comment about whether the Dodd-Frank Act's Volcker Rule, which prohibits certain proprietary trading and has yet to be finalized, could have stopped the debacle.

When pressed by Sen. David Vitter, R-La., about the Volcker Rule, Dimon called the regulation, as it is described thus far, as "vague" and "unnecessary."

Instead, Dimon said what are needed from financial firms are factors such as, proper capital, liquidity, risk measures and risk controls.

Sinegal said part of the reason this loss has captured the public's attention is because it happened at JP Morgan.

"If Jamie Dimon missed this large, complex, derivatives risk building, how can we trust that a bigger problem won't occur at another bank?" Sinegal said.

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, announced by JPMorgan on May 10, that may 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..."

Dimon said the risk committee meets with management and reviews "a lot of other issues" such as regulation requirements.

He defended his committee, saying it took the company through "the worst" financial crisis "with flying colors."

"It's hard to have the unrealistic expectation to capture things like this," he said.