Compliance

10:28 AM
Phil Albinus
Phil Albinus
Commentary
Connect Directly
Twitter
RSS
E-Mail
50%
50%

A Sneak Peek at Jamie Dimon's Testimony

The CEO of JPMorgan Chase has released his opening statement to Congress and while he comes clean he doesn’t say it was all THAT bad.

While the silver-haired CEO of JPMorgan Chase doesn’t exactly throw himself at the mercy of the Senate committee, he does give his side of the spectacularly bad $2 billion bet that may blossom to $3 or $4 or $5 billion dollars once the dust settles.

Here's what the poster boy for gutting the Volcker Rule will say this morning:

What Went Wrong?

We believe now that a series of events led to the difficulties in the synthetic credit portfolio. Among them:

  • CIO’s strategy for reducing the synthetic credit portfolio was poorly conceived and vetted. The strategy was not carefully analyzed or subjected to rigorous stress testing within CIO and was not reviewed outside CIO.

  • In hindsight, CIO’s traders did not have the requisite understanding of the risks they took. When the positions began to experience losses in March and early April, they incorrectly concluded that those losses were the result of anomalous and temporary market movements, and therefore were likely to reverse themselves.

  • The risk limits for the synthetic credit portfolio should have been specific to the portfolio and much more granular, i.e., only allowing lower limits on each specific risk being taken.

  • Personnel in key control roles in CIO were in transition and risk control functions were generally ineffective in challenging the judgment of CIO’s trading personnel. Risk committee structures and processes in CIO were not as formal or robust as they should have been.

  • CIO, particularly the synthetic credit portfolio, should have gotten more scrutiny from both senior management and the firmwide risk control function.

    Steps Taken

    In response to this incident, we have taken a number of important actions to guard against any recurrence.

  • We have appointed new leadership for CIO, including Matt Zames, a world class risk manager, as the Head of CIO. We have also installed a new CIO Chief Risk Officer, Chief Financial Officer, Global Controller and head of Europe. This new team has already revamped CIO risk governance, instituted more granular limits across CIO and ensured that appropriate risk parameters are in place.

  • Importantly, our team has made real progress in aggressively analyzing, managing and reducing our risk going forward. 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.

  • We also have established a new risk committee structure for CIO and our corporate sector.

  • We are also conducting an extensive review of this incident, led by Mike Cavanagh, who served as the company’s Chief Financial Officer during the financial crisis and is currently CEO of our Treasury & Securities Services business. The review, which is being assisted by our Legal Department and outside counsel, also includes the heads of our Risk, Finance, Human Resources and Audit groups. Our Board of Directors is independently overseeing and guiding these efforts, including any additional corrective actions.

  • When we make mistakes, we take them seriously and often are our own toughest critic. In the normal course of business, we apply lessons learned to the entire Firm. 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.
  • As any comic will tell you, Dimon closes big: "Last, I would like to say that in the face of these recent losses, we have come together as a Firm, acknowledged our mistakes, and committed ourselves to fixing them. We will learn from this incident and my conviction is that we will emerge from this moment a stronger, smarter, better company."

    What doesn’t the sleepy-eyed CEO say? "Please ignore our stupidly risky mistake and continue to consider killing almost all of Dodd-Frank and the Volcker Rule, mmkay?"

    Advanced Trading will follow Dimon's testimony throughout the day.

    Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio
    Comment  | 
    Print  | 
    More Insights
    More Commentary
    SEC Examinations: What to Expect When the SEC Is on It's Way
    Theodore Eichenlaub highlights trends in SEC expectations and how to approach a risk assessment of your compliance program.
    The Value of Predictive Analytics in Financial Services
    Risk management and customer data are two key areas where data analytics is being applied in financial services.
    Moving the Trader Closer to the Investment Process
    The sell side can demonstrate more value by applying analytics to pre- and post-trading, and by educating buy-side clients about broker segmentation, trading behavior and algorithm shortcomings, and more.
    Wirehouses May See More Independent BDs as Retention Packages Expire
    Retention bonuses are expiring, leaving brokerages vulnerable to attrition. Is access to technology making it easier for brokers to go independent?
    SCI: A Whale of a Regulation
    The SEC's Reg SCI weights in at a whopping 742 pages. Here is what you need to know about the oversized regulation.
    Register for Wall Street & Technology Newsletters
    White Papers
    Current Issue
    Wall Street & Technology - Elite 8, October 2014
    The in-depth profiles of this year's Elite 8 honorees focus on leadership, talent recruitment, big data, analytics, mobile, and more.
    Video
    Stressed Out by Compliance, Reputational Damage & Fines?
    Stressed Out by Compliance, Reputational Damage & Fines?
    Financial services executives are living in a "regulatory pressure cooker." Here's how executives are preparing for the new compliance requirements.