Two former high-ranking executives at JPMorgan Chase faced tough questions from U.S. senators Friday about why the bank played down risks and hid losses from regulators when it was losing billions of dollars.
The hearing was held a day after the Senate Permanent Subcommittee on Investigations issued a scathing report that ascribed widespread blame for $6.2 billion in trading losses to key executives at the nation’s biggest bank.
The losses came less than four years after the 2008 financial crisis and hurt the reputation of a bank that had come through the crisis known for taking fewer risks than its competitors. Three employees in the London office were fired—two senior managers and a trader. It also led to the resignation of Ina Drew, the former chief investment officer overseeing trading strategy.
Douglas Braunstein, the former chief financial officer, and Drew were pressed to explain why bank executives gave federal examiners in April information that significantly understated losses for the first quarter of 2012.
“The number I reported [to the regulators] was the number that was given to me,” said Drew, who resigned last spring after the losses became public.
Drew blamed the losses on executives under her watch who failed to control risks out of the London office. She said that undermined her oversight and kept her from preventing the losses.
The report also suggested that CEO Jamie Dimon was aware of the losses in April, even while he played them down publicly. And Sen. Carl Levin, the chairman of the panel, implied that Dimon set a precedent at the bank for withholding information.
Dimon acknowledged in May 2012 that the firm had lost $2 billion on risky trades out of its London office. The losses have since been revised to more than $6 billion.
After reading the report and hearing executives testify that they didn’t know who was responsible for informing regulators, members of the panel questioned whether the nation’s biggest bank had become too large to manage.
The “trading culture at JPMorgan…piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight and misinformed the public,” Levin said Friday at the hearing.
New York-based JPMorgan acknowledges that it made mistakes but rejects any assertions that it concealed losses or risks.
The bank said in a statement Friday, “We have made regrettable errors and overhauled our risk policies to correct these mistakes, but senior executives always provided information to regulators and the public that they believed to be accurate.”
Dimon was not a witness at Friday’s hearing.
In April, news reports said a trader in JPMorgan’s London office known as “the whale” had taken huge risks that were roiling the markets. Dimon immediately dismissed the reports as a “tempest in a teapot” during a conference call with analysts.
But Dimon acknowledged the losses a month later. And he told a separate Senate committee in June that the bank showed “bad judgment,” was “stupid” and “took far too much risk.” He also had his compensation last year reduced by 50 percent, as did Braunstein.
After the trading loss came to light, Drew resigned after 30 years with the firm and voluntarily paid back two years of salary.
Drew said Friday that while she doesn’t believe she bore personal responsibility for the losses, she decided to step down to make it easier for JPMorgan “to move beyond these issues.” Her comments were her first public remarks since leaving the firm.
Braunstein acknowledged that risk models for the trading operation were changed in a way that was improper early last year. The changes made the bank’s trading losses appear smaller than they were.
The subcommittee report was also critical of the Office of the Comptroller of the Currency, JPMorgan’s primary regulator. It said the Treasury agency failed to investigate the trading even when the London operation repeatedly blew through pre-set risk limits and it failed to notice when the unit didn’t submit required reports for several months.
The agency acknowledged that there were shortcomings in its oversight of JPMorgan.
“There were red flags that we failed to notice and act upon,” Comptroller Thomas Curry testified at Friday’s hearing.