WASHINGTON, June 13 (UPI) -- JPMorgan Chase chief James Dimon apologized before a U.S. Senate committee Wednesday for the bank's big investment blunder but said no clients lost any money.
JPMorgan Chase this year lost more than $2 billion in 15 days in a series of bets on credit default swaps in a bid to hedge risks. The company's chief investment officer retired in the wake of the losses.
In testimony during a 2-hour hearing before the U.S. Senate Banking Committee, Dimon said JPMorgan Chase's synthetic credit portfolio, intended to protect or hedge the company against a systemic financial crisis, "morphed into something that rather than protect the firm, created new and potentially larger risks. As a result, we've let a lot people down and we are very sorry for it."
Dimon said the Chief Investment Office's strategy for reducing the credit portfolio was "poorly conceived and vetted."
"In hindsight, the CIO trader did not have the requisite understanding of the new risk they took," Dimon said.
He said the synthetic credit portfolio should have gotten more scrutiny from both senior management and the firm's risk control function. In response to this incident, Dimon said JPMorgan Chase has appointed entirely new leadership for the Chief Investment Office, and is aggressively analyzing, managing and reducing risk going forward.
"While this does not reduce the losses already incurred and does not preclude future losses, it does reduce the probability and magnitude of potential future losses," he said. "While we can never say we won't make mistakes -- in fact, we know we will make mistakes -- we do believe that this was an isolated event."
Dimon tried to put the losses into perspective.
"We will lose some of our shareholders' money -- and for that, we feel terrible -- but no client, customer or taxpayer money was impacted by this incident," he said. "Our fortress balance sheet remains intact. As of quarter end, we held $190 billion in equity and well over $30 billion in loan loss reserves. We maintain extremely strong capital ratios, which remain far in excess of regulatory capital standards."
Democrats used the hearing as an opportunity to argue the need for implementing tougher financial rules based on the Dodd-Frank Act, which was written in response to the financial crisis of 2008, The Wall Street Journal reported.
Under questioning by Sen. Bob Menendez, D-N.J., who asked if the transaction had "morphed" into Russian roulette, Dimon replied, "It morphed into something that I can't justify. It was just too risky for our company."
He told Sen. Sherrod Brown, D-Ohio, he did not approve the trade.
"I was aware of it, but I didn't approve it," Dimon said.
Menendez accused the bank of lobbying against regulations that would protect the bank against losses.
"It seems to me the American people are a big part of helping to keep your bank healthy … and want to make sure you aren't working against legitimate efforts to control the risks," Menendez said.
Dimon said the bank supports some aspects of the Dodd-Frank Act, but calls the proposed Volcker rule unnecessary and "too confusing."
"I do understand the intent of the Volcker rule," Dimon said. "If the intent is to reduce activities that can jeopardize and threaten a big financial company, I completely understand that. I think the devil is going to be in the detail in how these rules are written that allow the good of our capital markets and not the bad."