Jamie Dimon won’t get off as easy at his second congressional hearing this month when he tries to explain how JPMorgan Chase & Co. lost at least $2 billion on trades that he has said “violated common sense.”
The U.S. House Financial Services Committee will be a tougher audience for Dimon when he testifies today after members of the Senate Banking Committee spent much of their June 13 hearing complimenting the chief executive officer or asking his advice on financial law, banking analysts said.
“He won’t get lawmakers apologizing for asking him questions like in the Senate,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and analyst at FBR Capital Markets in Arlington, Virginia. “There will probably be more outrage. They won’t be as friendly.”
The House hearing will take more time and won’t be nearly as controlled as Dimon faces more than 60 lawmakers, most of whom are up for re-election in November and motivated to capture local headlines, said Mark Calabria, director of financial regulation studies at the Cato Institute and a former senior aide to the Senate Banking Committee.
“The harsher and crazier that they can get, the more of a chance that they’ll get press coverage,” Calabria said. “It’s the House, so there’s always a bit more wildness to it.”
Dimon is also speaking on the second panel, following testimony from regulators including Securities and Exchange Commissioner Mary Schapiro and Comptroller of the Currency Thomas Curry. He faces Democrats who have pressed for tighter regulations on Wall Street’s largest firms, including the co- author of the 2010 Dodd-Frank Act. Lawmakers who have called to shrink or break up the largest financial institutions are also on the roster.
The hearing is the first held by the House on the trading losses, which have drawn inquiries from the SEC, Commodity Futures Trading Commission and Department of Justice.
The SEC’s review of JPMorgan’s $2 billion trading loss is “ongoing” and may examine the accuracy of the bank’s financial reporting, Schapiro said in remarks prepared for the hearing.
Schapiro, who said the SEC doesn’t publicly discuss open investigations, laid out areas in which the agency could pursue claims against an institution “in circumstances of this nature.” They include quarterly disclosures about market risks, compensation policies and accounting issues, she said.
Dimon’s written statement is nearly identical to his remarks in front of the Senate Banking Committee last week. During that hearing, Dimon apologized for the losses and said he felt “terrible” that shareholders would lose money because of the chief investment office’s trading strategy.
During more than two hours of testimony, Dimon described a $2 billion loss in the bank’s chief investment office as a hedge that “morphed into something I can’t justify,” and largely blamed subordinates for a trading strategy gone wrong. The bank is looking at clawing back some of the compensation earned by those responsible, he said.
Risk-monitoring systems and executives at the largest U.S. bank failed to adequately police threats concentrated in a derivatives portfolio at a London unit of the chief investment office, he said. The division wasn’t subjected to the same scrutiny as other businesses, and managers there deviated from control procedures, even after triggers on risk limits were breached, Dimon told the Senate panel.
Still, Dimon didn’t back away from his criticism of the Dodd-Frank Act and other regulations, including the so-called Volcker rule, which he called “unnecessary.”
Representative Spencer Bachus of Alabama, the Republican chairman of the committee, will emphasize the importance of capital buffers at the largest U.S. banks, according to his opening statement. Bachus also will also home in on the Volcker rule, which regulators are still revising.
“The Volcker rule proposal is, by itself, staggering in its length and complexity,” Bachus said in his prepared remarks. “And, more than a month after this loss was disclosed, the regulators still cannot say whether the Volcker rule would have prevented JP Morgan from making these trades.”
Lawmakers on the House committee, much like those on its Senate counterpart, have benefited from JPMorgan’s campaign donations.
Bachus received $11,000 from the bank’s political action committees and its employees during this campaign cycle, according to the Center for Responsive Politics. Representative Barney Frank, who was chairman of the committee from 2007 through 2010 and has decided to retire at the end of this term, received $11,000 from the bank and its employees during his first campaign cycle as chairman. Frank has received $4,500 this cycle.
Since the start of the current campaign cycle in 2011, lawmakers on the committee have received $168,055 from the bank’s employees and its political action committees, according to the Center for Responsive Politics. Republicans on the committee have received 73 percent of that money. Since 2005, lawmakers on the panel, which has been controlled by both parties during the period, have taken in $1.3 million.
FBR analyst Miller said it’s unlikely that House lawmakers will get any new information out of Dimon, saying that he’ll dodge the questions like he did in the Senate.
“There were some really good pointed questions last week, but there was no follow up,” Miller said. “All he has to do is answer the questions in a technical manner and they’ll get lost.”
Comedian Jon Stewart was among those who poked fun at the Senate hearing, saying the senators were “sucking up to Jamie Dimon like they were on JPMorgan’s payroll.”
“The House members have heard that,” Calabria said. “They don’t want to see their name in the paper next to how much they’ve gotten from JPMorgan with the implication that they’ve taken it easy on them.”