Dimon's sorry, sees profitable quarter for bank
WASHINGTON (MarketWatch) -- On the eve of a high-profile hearing on the bank's trading loss of at least $2 billion, J.P. Morgan Chase & Co. Chief Executive Jamie Dimon said he expected the lender to produce a "solidly profitable" quarter as he apologized again for the blowup.
Dimon released his testimony in advance of a Senate committee hearing on the trading losses of the bank's chief investment office. That unit, which Dimon said is charged with managing a $350 billion portfolio in a "conservative manner," instead produced a loss.
He explained that the losses came after the unit was instructed in December to reduce risk-weighted assets in anticipation of new Basel capital requirements. Banking regulators separately on Tuesday voted to propose those rules. Read the latest about banks' new capital rules.
Instead of reducing existing portfolios, the unit "embarked on a complex strategy that entailed adding positions that it believed would offset the existing ones," according to Dimon.
"This portfolio morphed into something that, rather than protect the firm, created new and potentially larger risks. As a result, we have let a lot of people down, and we are sorry for it," he said.
J.P. Morgan's (JPM) mistakes included a "poorly conceived and vetted" strategy, inadequate understanding of risks by the bank's traders and a lack of scrutiny from bank senior management. A shake-up of the office's leadership and progress in reducing risk led him to state "we do believe this to be an isolated event."
With two weeks left in the quarter, Dimon declared the period will be "solidly profitable." He said the fortress balance sheet remains intact, and that he expects the Basel I Tier 1 common ratio and Basel III Tier 1 common ratio to be higher by the end of the year.
The banking-committee hearing, entitled "A Breakdown in Risk Management: What Went Wrong at J.P. Morgan Chase?" is scheduled for Wednesday at 10 a.m. Eastern.
Dimon's appearance before the committee could determine whether efforts by a few on Capitol Hill to break up the big banks will gain traction, observed Jaret Seiberg, analyst at Guggenheim Securities LLC in Washington. Read a preview of the J.P. Morgan hearing.