NEW YORK ( TheStreet) -- In a statement prepared for his Wednesday testimony to the Senate Banking Committee, JPMorgan Chase ( JPM) 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."