World and Nation

JPMorgan chief expected to play down trade risks

When JPMorgan’s chief executive, Jamie Dimon, appears on Wednesday on Capitol Hill, he plans to play down the risky trading activities that could prompt as much as $5 billion in losses.

In prepared testimony for a Senate hearing into the trading mess, Dimon called the losses an “isolated event” that would not hurt customers or taxpayers. While apologizing for various mistakes, he explained that risk was unavoidable in the banking business, and ultimately the firm’s capital position and diversified model “did what they were supposed to do” and protected the company against unexpected losses in one area.

Those internal systems will be scrutinized by lawmakers. At the hearing on Wednesday, the Senate Banking Committee will focus on the firm’s risk controls and management oversight. In particular, the committee, led by Sen. Tim Johnson, D-S.D., will take aim at statements by Dimon, who publicly dismissed concerns about the risky trades just a month before disclosing the multibillion-dollar losses.

“How can a bank take on ‚ ‘far too much risk’ if the point of the trades was to reduce risk in the first place? Or was the goal really to make money?” Johnson said in prepared remarks. “As the saying goes, you can’t have your cake and eat it too.”

For months, the bank has tried to assuage investors and regulators about the risky trading activities inside its chief investment office.

After media reports surfaced in early April that the group was cornering a little-known credit market, the Office of the Comptroller of the Currency approached JPMorgan to ferret out potential threats. The bank assured the agency, the unit’s primary regulator, that the situation was under control, according to a person briefed on the matter but not authorized to speak publicly about it. A senior bank executive later dismissed the similar concerns of a Federal Reserve examiner embedded within JPMorgan’s New York headquarters, said three current regulators.

Dimon echoed their sentiments a week later. On an April 13 conference call with analysts, he called the concerns about the group a “complete tempest in a teapot.”

But the reassurances came just days after the bank’s own alarms sounded. On April 10, the position suffered losses of about $300 million, according to a person briefed on the matter. That, in turn, set off an internal warning system for the bank’s risk managers, people briefed on the matter said.