JPMorgan CEO withheld data, lawmakers told

Ina Drew, former chief investment officer with JPMorgan Chase & Co., listens during a Senate Permanent Subcommittee on Investigations hearing Friday in Washington.
Ina Drew, former chief investment officer with JPMorgan Chase & Co., listens during a Senate Permanent Subcommittee on Investigations hearing Friday in Washington.

WASHINGTON - JPMorgan Chase Chief Executive Officer Jamie Dimon failed to show federal regulators reports in May that revealed the bank had accumulated billions of dollars in trading losses, according to congressional testimony Friday from the firm’s former chief financial officer.

Douglas Braunstein, who is now a vice chairman at the bank, told the Senate Permanent Subcommittee on Investigations that Dimon did not submit the daily reports for two weeks because he was concerned about “confidentiality.”

Dimon acknowledged later that month that the firm had lost $2 billion on risky trades out of its London office. The losses have since been revised to more than $6 billion.

The Senate hearing was held a day after the subcommittee issued a report that ascribed widespread blame for losses to key executives at the firm. The report said that the executives ignored growing risks and hid losses from investors and federal regulators.

After reading the report and hearing executives testify that they didn’t know who was responsible for informing regulators, members of the panel questioned whether the nation’s biggest bank had become too large to manage.

The “trading culture at JPMorgan … piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight and misinformed the public,” Sen. Carl Levin, D-Mich., the subcommittee’s chairman, said Friday at the hearing.

“Let me be clear: JPMorgan completely disregarded risk limits and stonewalled federal regulators,” said Sen. John McCain, R-Ariz., the panel’s top Republican. “This bank appears to have entertained, indeed embraced, the fact that it was too big to fail.”

On Thursday, JPMorgan acknowledged it had made mistakes but rejected any assertions that it concealed losses or risks. A spokesman declined to comment directly on the accusation that Dimon knew of the trading loss in April.

Dimon was not a witness at Friday’s hearing.

In April, news reports said a trader in JPMorgan’s London office had taken risks that were roiling the markets.

JPMorgan’s loss came from an investment involving derivatives, in which the bank wagered on the creditworthiness of companies. The portfolio became “huge” and “monstrous,” according to excerpts of e-mails and recorded conversations from trader Bruno Iksil, nicknamed the London Whale because his portfolio was so large it moved markets.

Dimon immediately dismissed the reports as a “tempest in a teapot” during a conference call with analysts.

But Dimon acknowledged the losses a month later. And he told a separate Senate committee in June that the bank showed “bad judgment,” was “stupid” and “took far too much risk.” He also had his compensation last year reduced by half, as did Braunstein.

The hearing featured testimony from Braunstein and Ina Drew, who was the firm’s chief investment officer overseeing trading strategy at the time of the losses.

Both were asked about information that bank executives gave to federal examiners in April that significantly understated losses for the first quarter of 2012. The numbers they gave the regulators were well below what was known inside the bank, said Levin.

“The number I reported [to the regulators] was the number that was given to me,” Drew testified.

Drew blamed the losses on executives under her watch who failed to control risks out of the London office. She said that undermined her oversight and kept her from preventing the losses.

“Clearly mistakes were made,” Drew said. “The fact that these mistakes have happened on my watch has been the most disappointing and painful part of my professional career.”

Braunstein acknowledged that risk models for the trading operation were changed in a way that was improper early last year. The changes made the bank’s trading losses appear smaller than they were.

After the trading loss came to light, Drew resigned after 30 years with the firm and voluntarily returned two years of her salary.

She said Friday that while she doesn’t believe she bore personal responsibility for the losses, she decided to step down to make it easier for JPMorgan “to move beyond these issues.” Her comments were her first public remarks since leaving the firm.

“You had to figure Congress would hold JPMorgan to the fire,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. The bank and Dimon are “thought to be the best in the business in managing a global bank and the risks that come with it. So when high expectations come up short,” Wall Street and Washington demand answers, he said. “Someone was going to be taken to task.”

JPMorgan needs to win back public trust after the losses eroded confidence in the largest U.S. bank, a company risk manager told lawmakers.

“This whole thing is regrettable and unacceptable,” Ashley Bacon, acting chief risk officer of the bank, told the subcommittee. “The onus of proof is on us now to demonstrate how this can’t happen in other places, how we weathered the financial crisis well everywhere else, and how we can make the entire firm a safer place to the satisfaction of you, everybody else and our regulators.”

JPMorgan shares fell 98 cents, or 2.1 percent, to close at $50.02. While the lender won approval Thursday to raise its dividend 27 percent to 38 cents a share and buy back $6 billion in stock, as part of a review of top U.S. banks, the Federal Reserve ordered the company to address weaknesses in its capital plan and resubmit a proposal by the end of the third quarter.

Information for this article was contributed by Marcy Gordon of The Associated Press and Clea Benson, Dawn Kopecki and Mary Childs of Bloomberg News and Jim Puzzanghera of the Los Angeles Times.

Front Section, Pages 1 on 03/16/2013

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