This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

JPMorgan's Dimon Says He Couldn't Spot 'London Whale'

NEW YORK ( TheStreet) -- In a statement prepared for his Wednesday testimony to the Senate Banking Committee, JPMorgan Chase (JPM - Get Report) chief executive Jamie Dimon will concede he was unaware of some of the risks that the bank's Chief Investment Office took when investing in risky derivative products that led to a $2 billion loss in May.

While Dimon will testify that he was not appraised of the risks some of his traders were taking, he will also makes the point that the unit's own traders didn't understand those same risks which eventually lead to the birth to the "London Whale."

JPMorgan Chase CEO Jamie Dimon

In spite of losses that JPMorgan previously said could grow by a billion, Dimon will make the point that the unit's losses won't eliminate second quarter profits at the nation's largest bank.

After previously reporting the loss in a 10-Q filing in May, Dimon will testify to the Senate that a change to the investing style of the bank's CIO office - a unit that invests billions in excess deposits to hedge credit risk and earn investment income -- went unknown to him and other top executives.

" The strategy was not carefully analyzed or subjected to rigorous stress testing within CIO and was not reviewed outside CIO," said Dimon in prepared remarks for the Senate released on Tuesday afternoon.

Echoing past statements about the trading loss, Dimon said that the unit's hedging strategy using credit derivatives tied to the creditworthiness of investment grade corporations was "poorly conceived and vetted."

According to the testimony, Dimon will say that after instructing traders to reduce the banks' exposure to the credit hedge, a decision by traders in the unit to double down on credit derivative products instead of simply selling them went against his instructions.

" As part of a firmwide effort in anticipation of new Basel capital requirements, we instructed CIO to reduce risk-weighted assets and associated risk. To achieve this in the synthetic credit portfolio, the CIO could have simply reduced its existing positions," Dimon's will say in a statement.

" Instead , starting in mid-January, it embarked on a complex strategy that entailed adding positions that it believed would offset the existing ones. This strategy, however, ended up creating a portfolio that was larger and ultimately resulted in even more complex and hard-to-manage risks."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
JPM $62.61 0.43%
AAPL $131.08 -1.20%
FB $81.11 -0.98%
GOOG $554.13 -0.22%
TSLA $230.98 -0.25%

Markets

DOW 18,092.95 +54.98 0.30%
S&P 500 2,113.16 +4.24 0.20%
NASDAQ 5,058.6160 -1.63 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs