* Dimon to appear before Senate Banking panel on Wednesday
* Says bank is in solid shape, trading problems isolated
* Says CIO unit started complex trading plan in January
* Does not give update on size of trading losses
By Dave Clarke and David Henry
WASHINGTON, June 12 (Reuters) – JPMorgan Chase & Co’s
recent trading losses are an isolated incident and the
bank is expected to be “solidly profitable” in the second
quarter, Jamie Dimon, the bank’s chief executive, will tell the
Senate Banking Committee on Wednesday.
Dimon will tell the committee the bank feels terrible about
the trading debacle, while emphasizing the losses will only hurt
shareholders, not taxpayers, and the bank maintains a “fortress
balance sheet,” according to his prepared testimony.
“While we can never say we won’t make mistakes – in fact, we
know we will – we do believe this to be an isolated event,”
Dimon will say, according to his testimony released by the bank
on Tuesday.
Last month, JPMorgan announced that a hedging strategy had
gone awry and produced at least $2 billion in unexpected trading
losses.
The surprising admission from the nation’s largest bank,
which is known for gracefully navigating the recent financial
crisis, has prompted questions about whether some banks are too
big to manage.
Dimon in his prepared testimony did not provide an updated
estimate for the losses, but said progress was being made to
reduce the risk associated with the trading positions.
Dimon is contrite in his testimony and says the bank did not
have proper risk protections in place in the Chief Investment
Office where the losses occurred.
He makes clear, however, that the bank remains in solid
shape and that the bank’s size was not the core problem. Rather,
it was a poorly conceived trading strategy that was not reviewed
by senior management.
“Our fortress balance sheet remains intact,” he said. “While
there are still two weeks left in our second quarter, we expect
our quarter to be solidly profitable.”
PROBLEMS STARTED IN JANUARY
Dimon portrays the losses as the result of miscalculations
and failures of oversight related to the bank’s decision to
reduce the amount of risky assets it held in preparation for new
international capital standards known as Basel III.
Dimon said the bank could have simply reduced the amount of
these risky assets on its books but the CIO office instead,
starting in mid-January, “embarked on a complex strategy” that
involved adding positions traders believed could offset the
existing assets.
“The strategy was not carefully analyzed or subjected to
rigorous stress testing within CIO and was not reviewed outside
CIO,” Dimon says.
Dimon said that the bank has made “real progress” in
managing and reducing the risk associated with these trading
positions.
“While this does not reduce the losses already incurred and
does not preclude future losses, it does reduce the probability
and magnitude of future losses,” he said.
