WASHINGTON — JPMorgan Chase chief Jamie Dimon insisted Wednesday that his bank is solid and that there was no need for rules to block the derivatives trading that dealt it a shock $2 billion loss last month.
In the hot seat before a US Senate committee over accusations that the giant bank was taking excessive risks in "out of control" proprietary trading, Dimon conceded the loss was a bad management error.
But he argued that it was an "isolated event" that was dwarfed by the bank's huge capital cushion and so did not require any broad regulatory action.
"We are doing what a bank is supposed to do. We do it every single day," Dimon told the Senate Banking Committee.
"All of our lines of business remain profitable and continue to serve consumers and businesses," he said.
"While there are still two weeks left in our second quarter, we expect our quarter to be solidly profitable."
He said the bank's capital cushion was large and that global capital rules and some new regulations had plugged the weaknesses in the financial system overall.
Other recent and proposed regulations -- including the "Volcker Rule" that would ban active trading of bank assets to generate greater profits -- were not so necessary, and were in fact burdens, Dimon said.
"I thought it was unnecessary when it was added on top of the other stuff," he said of the controversial Volcker Rule, still under consideration by US regulators.
With the massive public-funded bailouts of the 2008 financial crisis still fresh in mind, senators questioned Dimon over the kind of risks he was taking with the country's largest bank.
On May 10, JPMorgan shocked investors by revealing a $2 billion loss in derivatives trading over just six weeks and said an additional $1 billion loss was possible by the end of June.
The New York Times reported that the losses could rise to $5 billion.
The loss came as Dimon has publicly led a fight against the Dodd-Frank financial industry reform legislation and especially the Volcker Rule, aimed at halting the often lucrative proprietary trade that critics say JPMorgan was doing when it scored the loss.
"Where were the risk controls?" at "a bank renowned for its risk management," asked the committee chairman, Senator Tim Johnson.
Johnson noted that in April, Dimon had downplayed reports of the loss as a "tempest in a teapot."
"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," said Johnson.
Dimon shed little new light on what happened to cause the loss, repeating that it was originally a sound trading strategy to hedge risk that had "morphed" into a disastrous market position in synthetic credit, or derivatives.
But he insisted the bank's "fortress" balance sheet "remains intact" despite the losses.
"We will not make light of these losses, but they should be put into perspective," he said.
"Our strong capital position and diversified business model did what they were supposed to do: cushion us against an unexpected loss in one area of our business."
Dimon said the bank's $350 billion Chief Investment Office, which was responsible for the loss, was on the whole a very valuable operation that necessarily traded the bank's idle assets both to generate profits and hedge risk.
"The $350 billion is very conservatively done, and is allowed under Volcker," he said.
"You want us to have a nice conservative portfolio. I've confessed to the sins of the synthetic credit side. We will not do something like that again."
He said that tougher regulation could stifle crucial economic activity.
"The really important part of the Volcker rule isn't portfolio hedging. It's the ability to actively make markets. It's the ability to actively raise money for companies and clients and investors."
"The capital markets of America are part of the great American economic business engine... We don't want to throw the baby out with the bath water."
Mark Williams, a finance professor at Boston University, said Dimon was only trying to "muddy the waters" in the discussion over the proprietary trade.
"It's not done for the benefit of the overall market. They trade to trade," he told AFP.
"JPMorgan isn't different," he added, referring to Dimon's argument that the bank is so large it needs its $350 billion CIO operation.
"JPMorgan is a commercial bank that wants to be and behaves like a hedge fund."
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