When JPMorgan Chase CEO Jamie Dimon appeared earlier today before the Senate Banking, Housing and Urban Affairs Committee, he wasn't exactly an unfamiliar face to the members or they to him. He and JPMorgan Chase PACs have been generous contributors to committee senators in both parties. So when he said in response to a question from Mississippi Republican Sen. Roger Wicker that "we’ll do whatever you want, we’ll even get apartments down here" to consult with Congress on financial regulations, it was hard not to wonder why he didn't just offer to move into one of the senators' spare bedrooms.
Matters only got moderately testy in the two-hour hearing when Sen. Robert Menendez (D-NJ) and Sen. Jeff Merkley (D-OR) pushed Dimon a bit:
Merkley: In 2008 and 2009, your company benefited from half a trillion in low-cost federal loans, $25 billion in TARP loans, of TARP funds. Untold billions indirectly through the bailout of AIG that helped address your massive exposure in repurchase agreements and derivatives. With all of that in mind, wouldn't JPMorgan have gone down without the massive federal intervention, both directly and indirectly in 2008 or 2009?
Dimon: I think you were misinformed and I think that misinformation is leading to a lot of the problems we're having today. JPMorgan took TARP because we were asked to by the Secretary of Treasury of the United States of America with the FDIC in the room, head of the New York Fed, Tim Geithner, Chairman of the Federal Reserve, Ben Bernanke. We did not at that point need TARP. We were asked to because we were told, I think correctly so that if the nine banks there, and some may have needed it, take this TARP we can get it to all these other banks and stop the system from going down.
Merkley: I'm going to cut you...
Dimon: It is not that we did not borrow from the Federal Reserve, except when they asked us to. They said please use these facilities to make it easier for other...
Merkley: We would all like to be asked...
Dimon: And we were not bailed out by AIG, OK? If AIG itself—we would have had a direct loss of maybe $1 billion or $2 billion when AIG went down. And we would have been okay.
Merkley: Then you have a difference of opinion with many analysts in the situation who felt that AIG bailout did benefit you enormously. And I'm not [having that argument] with you now, sir.
Dimon: They're factually wrong.
Merkley: This is not your hearing. I'm asking you to respond to questions and I also only have five minutes. So, let's agree to disagree. But I think that many analysts have reached the conclusion that if you had applied that Old Testament justice in 2008-2009, JPMorgan would have gone down and you would have been out of a job. And it goes to the enormous frustration on how many companies in the history of the planet have been offered a half a trillion dollars in low interest loans? Not many.
But the basic concept behind the Volcker firewall is that banks are in the lending business, not in the hedge fund business. And do you share that kind of basic philosophical orientation?
Dimon: We are not in the hedge fund business. [...]
Here are the facts. We have $350bn of assets in CIO. The average rating is AA-plus. The average maturity has a duration of three years, not 20 or 30. The average yield is 2.7%. Those characteristics are of a very conservative portfolio. One of the other Senators mentioned ... in addition to that, we have $150bn sitting in central banks around the world. The other Senator just pointed out that we don't make enough loans, less loans to deposits is considered conservative, not aggressive.
Merkley: So you would disagree...
Dimon: In this other area, yes I—there's a legitimate complaint.
Merkley: Okay. So David Olsen, former head of credit trading said, "We want to ramp up the ability to generate profit for the firm. This is Jamie's new vision for the company." But you would fundamentally disagree that that was your instruction in building the CIO unit?
Dimon: I don't believe everything I read. I hope you don't either.
Merkley: You disagree?
Dimon: I don't know what he means.
Highlights from the rest of the hearing in which Dimon apologized for losing $2 billion of shareholders' dollars in risky trading:
• Dimon also apologized for his earlier description of the losses as a "tempest in a teapot," saying "I was dead wrong" but maintained that he was misinformed about the scale of losses at the time.Since Dimon thinks JPMorgan will seek to recover compensation from senior executives responsible for the trading losses, and since he admits the buck stops with him, one wonders how many of the 21.5 million bucks in bonuses he made in 2011 he will cough up.
• Senior executives responsible for the CIO's $2 billion trading loss face having their bonuses and share options deducted, Dimon told the committee: "It's likely that there will be clawbacks."
• Describing his own role in establishing the bank's unit that caused the losses, Dimon said: "We made a mistake. I'm absolutely responsible. The buck stops with me."
• Questioned on the role the proposed Volcker Rule would have played in stopping JPMorgan from the loss-making trades, Dimon conceded that it was "possible" such a rule may have helped. [...]
• Dimon later admitted that he had been informed of the change to the risk management model in the loss-making unit: "I was copied on a memo that said there was a change in the VAR model. I paid no attention to it."