JPMorgan Chase & Co. Chief Executive Officer Jamie Dimondefended the company's disclosures of a $2 billion trading loss asregulators and lawmakers questioned whether the largest U.S. bankmisled investors.

“We disclosed what we knew when we knew it,” Dimon, making hissecond appearance on Capitol Hill in less than a week, saidyesterday at a House Financial Services Committee hearing inWashington that exceeded four hours.

Dimon went there to explain how the firm lost control of acredit-derivatives account at its chief investment office inLondon. Securities and Exchange Commission Chairman Mary Schapiro,speaking earlier from the same witness table, said the agency has a“wide panoply” of penalties at its disposal to pursue sanctions ifinvestigators find that New York-based JPMorgan violated disclosureor other rules, she said.

Investors and regulators have questioned JPMorgan's disclosuresof changes to the CIO's so-called value-at-risk, or VaR,calculation that ended up cutting the unit's risk profile by abouthalf. More than $20 billion of JPMorgan's market value has beenwiped out since Dimon disclosed the loss on May 10. The sharesclimbed 2.2 percent to $35.38 yesterday in New York.

JPMorgan altered the risk model in mid-January without tellinginvestors then. The firm didn't disclose the change on April 13,when it reported financial results and said in a separateregulatory filing that VaR at the CIO averaged $67 million. Whenthe company realized the new version was flawed and reverted to theold model, it showed VaR averaged $129 million and ended thequarter at $186 million.

The SEC is looking at whether the change had the effect of“understating the value-at-risk significantly,” said Schapiro, whoturned 57 yesterday.

Dimon, 56, told the House panel that the new VaR model, whilenot causing the loss, “may have aggravated what happened.”

VaR represents the maximum amount that traders would expect tolose on 95 out of 100 trading days, according to JPMorgan. It'srecalculated daily, and the quarterly average is reported insecurities filings.

The measure “is not required to be disclosed in the earningsrelease, but if you choose to speak to it, you must speaktruthfully and completely,” Schapiro, 57, told the House panel.

JPMorgan's loss could balloon beyond $2 billion as the bankuntangles some of the trades, Dimon has said. He told lawmakersthat he won't provide an update on the loss until the bank postssecond-quarter results before U.S. markets open on July 13.

'Dead Wrong'

Dimon said he was “dead wrong” when he dismissed news reportsabout the trades as a “tempest in a teapot” during an earnings callwith analysts on April 13, three days after the London book lost$300 million in a single day.

“Our folks had looked at reports after that about how bad it canget,” Dimon said. “We stress-tested it. Some of the stress reports,I may have seen them, but they reported to me that it doesn't showit could get that much worse.”

U.S. Representative Brad Miller, a North Carolina Democrat,questioned Dimon's reliance on information from his management teamin downplaying the seriousness of the problem. “It seemed likethere must be a limit on that entitlement if you have noticed thatthere may be something wrong,” Miller said.

Dimon, as he testified about the London team's losses,encouraged Congress to limit the international reach of swapsregulations required under the Dodd-Frank Act.

“If JPMorgan overseas operates under different rules thanour foreign competitors, we can no longer provide the best productsand services to our U.S. clients or our foreign clients,” Dimonsaid. “They will go elsewhere if we can't give them the bestpossible deal.”

The Commodity Futures Trading Commission, the main U.S.derivatives regulator, is poised to propose guidance on June 21that would extend swaps rules to foreign branches and subsidiariesof JPMorgan, Goldman Sachs Group Inc., Citigroup Inc. and otherU.S. banks.

When Dimon appeared before the Senate Banking Committee on June13, lawmakers apologized for questioning him. He was asked for hisopinion on subjects including Europe's debt crisis and howlawmakers should resolve the so-called fiscal cliff after the endof the year, when automatic tax increases and budget cuts are setto pull billions of dollars of purchasing power out of the U.S.economy.

Cooler Reception

Dimon was less warmly received in the House where lawmakerspressed him for more details about the bank's disclosures, thechange in VaR and lobbying against federal rules.

Representative Stephen Lynch, a Massachusetts Democrat, pressedHouse Financial Services Committee Chairman Spencer Bachus, anAlabama Republican, to require Dimon to testify under oath. Bachusdeclined, saying it wasn't the committee's tradition to requirewitnesses to deliver sworn testimony.

Representative Gary Ackerman, a New York Democrat, likenedJPMorgan's trade to gambling.

“If you are right a majority of the time, then it makes a bunchof money for the guys who did it and doesn't help the company, theindustry, the economy or the country at all,” Ackerman said. “Andif you're wrong, it puts systemically, everything at risk.”

Representative Maxine Waters, a California Democrat, asked Dimonto explain why JPMorgan has lobbied against parts of Dodd-Frank.The CEO has been a critic of the so-called Volcker rule, aprovision meant to limit lenders from making proprietary trades, orbets with their own money.

“Lobbying is a constitutional right and we have a right to haveour voice heard,” he told Waters.

Dimon, meanwhile, said it isn't necessary for his voice to beheard in the boardroom of the Federal Reserve Bank of New York,where he's a director. Senator Bernie Sanders, a Vermontindependent, introduced legislation on May 22 that would banemployees of bank holding companies or other firms regulated by theFed from serving on regional Fed bank boards.

Dimon reminded lawmakers that Congress is responsible forwriting the laws that govern the central bank and said his role atthe New York Fed is limited. He doesn't vote on the New York Fed'spresident or get involved in supervision, he said.

“It's more of an informational advisory group,” he said.

The heads of the Office of the Comptroller of the Currency,Federal Deposit Insurance Corp. and CFTC, as well as Fed GeneralCounsel Scott Alvarez, were grilled along with the SEC's Schapiroover how they could have missed the trading debacle.

'Held Accountable'

“Just as JPMorgan should be and is being held accountable forits risk-management failures, accountability must also be demandedof the federal regulators who oversee the bank's activities,”Bachus said.

Comptroller of the Currency Thomas J. Curry said his agency isreviewing its staffing inside JPMorgan's London operations.

“We will use our experience here, our review of JPMorgan Chase,to re-evaluate the numbers and strength of the personnel in ourLondon office,” he said.

The hearing drew protests from about two dozen nurses wearinggreen and red caps and holding signs as they chanted “Jamie Dimon,you're no good, the people need a Robin Hood.”

“He's a really good example of the kind of reckless speculationthat should be taxed,” said Matthew Kavanagh, director of U.S.advocacy for Health Gap, an AIDS activist organization thatorganized the protest with National Nurses United. The groups arelobbying for a “Robin Hood” tax on derivatives, stock, currency andother Wall Street transactions to subsidize health carebenefits.

Bloomberg News

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