April 18, 2024

DealBook: Dimon, Testifying Before House, Sticks to Script

Daniel Rosenbaum for The New York TimesJamie Dimon at the Senate committee hearing on Tuesday.

WASHINGTON — Jamie Dimon, the chief executive of JPMorgan Chase, tussled with lawmakers on Tuesday in his second showdown in Washington since JPMorgan, the nation’s largest bank, disclosed a multibillion-dollar trading loss.

At a hearing of the House Financial Services Committee, members peppered Mr. Dimon, once considered Washington’s favorite banker, with pointed questions about the bank’s aggressive lobbying, its failures in risk management and its focus on complex bets in the credit markets instead of lending.

Unlike their Senate counterparts, who accorded Mr. Dimon more deferential treatment last week, House lawmakers demanded answers. At one point, Representative Barney Frank, the Massachusetts Democrat who helped write the Dodd-Frank financial regulatory overhaul, told Mr. Dimon to “stop filibustering” and said that he was frankly “disappointed” with some of the banker’s answers.

The hearing was the latest chapter of the trading debacle, which has drawn new cries from lawmakers for tougher oversight of the nation’s banks and spurred wide-ranging inquiries by regulators and the Federal Bureau of Investigation.

Revealing the most among her counterparts about those investigations, Mary L. Schapiro, the chairwoman of the Securities and Exchange Commission, told the panel in a session ahead of Mr. Dimon’s testimony that the agency was focused on whether the bank was forthcoming with investors.

Mr. Dimon said, “We disclosed what we knew when we knew it.”

He sought Tuesday to fend off implications that he misled investors on a now-infamous April 13 conference call, when he dismissed reports of potentially risky trading in the credit markets as a “tempest in a teapot.”

Mr. Dimon offered scant new details about the size of the trading losses. At one point during the hearing, Representative Carolyn B. Maloney, Democrat of New York, seemed to snare Mr. Dimon with questions about when he understood the full extent of the losses. After briefly speaking with his general counsel, seated behind him, Mr. Dimon said that he had no idea about the full extent of the losses until late April.

But in a later exchange with Representative Randy Neugebauer, Republican of Texas, Mr. Dimon admitted knowing that on April 10 the bank had a $300 million loss from the position, raising questions about his disclosures at the time.

“That’s a pretty big pop, even in your organization,” the congressman said.

Democratic House members grilled Mr. Dimon about the bank’s aggressive lobbying in Washington, which was specifically aimed at watering down the Volcker Rule that would ban banks from making bets with their own money.

A frequent visitor to Washington, Mr. Dimon defended the bank’s right to influence lawmakers. “Lobbying is a constitutional right and we have a right to have our voice heard,” Mr. Dimon said.

Even as he apologized for the trading blunder, which was made in the bank’s chief investment office and has grown to at least $3 billion, Mr. Dimon emphasized that the loss was an “isolated incident.” As in the Senate hearing, he said the unit’s London office “embarked on a complex strategy” that became an indefensible position that created greater risks. He reiterated that the bank “let a lot of people down, and we are sorry for it.”

Many of the committee members were not appeased.

Mr. Frank, for instance, asked Mr. Dimon twice whether his own compensation, which stood at $23 million last year, would be clawed back by the board.

Mr. Dimon said that was up to the directors.

Several House members focused on why the bank put billions of dollars into risky trading rather than use that cash to make more loans to small- and medium-size businesses. If the bank made more loans, several lawmakers argued, the chief investment office that housed more than $300 billion — the difference between the bank’s broad deposit base and the loans extended — could have dodged losses.

In his prepared statement, Mr. Dimon said the bank was focused on serving clients and had made $116 billion in loans to midsize companies, up 16 percent from the same period a year ago. Both Mr. Frank and Representative Maxine Waters, Democrat of California, highlighted the soured trades made by the London office as further evidence that all trading should be subject to rules being determined in Washington. Along with industry rivals, Mr. Dimon has long countered that trades booked offshore should be exempt, arguing that such demands would hamper the nation’s banks in competing abroad.

Throughout the hearing, a bipartisan chorus pressed Mr. Dimon about the size of JPMorgan, demanding to know if it was too big to fail. Representative Sean Duffy, Republican of Wisconsin, focused on Mr. Dimon’s own failure to spot the troubled bet as evidence that the bank’s risk-taking was too unwieldy.

“No, we’re not too big to fail,” Mr. Dimon said. But if the bank did fail, he said, any losses should be charged back to the financial system, not shouldered by taxpayers.

Asked by Mr. Duffy whether it was possible for JPMorgan to suffer a trillion-dollar loss, Mr. Dimon responded, not “unless the Earth is hit by the moon.”

Mr. Dimon said that there should be specific limits on the types of trades that failed. In this case, however, he said, not enough limits were erected.

Earlier Tuesday, lawmakers pushed a panel of the bank’s five regulators on how they missed the increasingly risky trades.

“Even with the matrix of communication, no one was catching it,” Representative Shelley Moore Capito, Republican of West Virginia, said. “Is the communication really working?”

The officials acknowledged that their agencies were unaware of the losses until news media reports in early April.

Thomas J. Curry, comptroller of the currency, said his office was “initially relying on the information available to the bank.” Scott Alvarez, the general counsel of the Federal Reserve, concurred, noting that, “We have to rely on information we get from the organization itself.” If that is flawed, he added, then regulators will have a problem.

Gary Gensler, chairman of the Commodity Futures Trading Commission, underscored how the trading loss had broader implications for potential rules that would apply to the global financial system. He said that by placing the risky trades in London, JPMorgan’s bets escaped the view of American regulators. Mr. Gensler said he hoped to close that gap soon, so that Wall Street would have “rules of the road.”

Mr. Frank and Republicans traded barbs over Dodd-Frank throughout the hearing, with some blaming it for allowing trading losses like that at JPMorgan.

“You can see we’re not ready to break into a kumbaya,” Representative Spencer Bachus, an Alabama Republican and the committee’s chairman, told the regulators in a moment of levity. “Welcome to the serenity of the Financial Services Committee.”

This post has been revised to reflect the following correction:

Correction: June 21, 2012

An article on Wednesday about the testimony of Jamie Dimon, JPMorgan Chase’s chief executive, before a committee of the House of Representatives misidentified the state represented by the committee’s chairman, Spencer Bachus. It is Alabama, not Texas.

Article source: http://dealbook.nytimes.com/2012/06/19/dimon-testifying-before-house-sticks-to-script/?partner=rss&emc=rss