WASHINGTON — JPMorgan Chase CEO Jamie Dimon held back showing federal regulators reports in May that revealed the bank had accumulated billions of dollars in trading losses, according to congressional testimony Friday from the firm’s former chief financial officer.
Douglas Braunstein, who is now a vice chairman at the bank, told the Senate Permanent Subcommittee on Investigations that Dimon did not submit the daily reports for two weeks because he was concerned about “confidentiality.”
Dimon ultimately acknowledged later that month that the firm had lost $2 billion on risky trades out of its London office. The losses have since been revised to more than $6 billion.
The Senate hearing was held a day after the subcommittee issued a scathing report that ascribed widespread blame for losses to key executives at the firm. The report said that the executives ignored growing risks and hid losses from investors and federal regulators.
After reading the report and hearing executives testify that they didn’t know who was responsible for informing regulators, members of the panel questioned whether the nation’s biggest bank had become too large to manage.
The “trading culture at JPMorgan … piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight and misinformed the public,” Sen. Carl Levin, D-Mich., the subcommittee’s chairman, said Friday at the hearing.
On Thursday, JPMorgan acknowledged it made mistakes but rejected any assertions that it concealed losses or risks. A spokesman declined to comment directly on the accusation that Dimon knew of the trading loss in April.
Dimon was not a witness at Friday’s hearing.
In April, news reports said a trader in JPMorgan’s London office known as “the whale” had taken huge risks that were roiling the markets. Dimon immediately dismissed the reports as a “tempest in a teapot” during a conference call with analysts.
But Dimon acknowledged the losses a month later. And he told a separate Senate committee in June that the bank showed “bad judgment,” was “stupid” and “took far too much risk.” He also had his compensation last year reduced by 50 percent, as did Braunstein.
The hearing featured testimony from Braunstein and Ina Drew, who was the firm’s chief investment officer overseeing trading strategy at the time of the losses.
Both were asked about information that bank executives gave to federal examiners in April that significantly understated losses for the first quarter of 2012. The numbers they gave the regulators were well below what was known inside the bank, said Levin.
“The number I reported (to the regulators) was the number that was given to me,” Drew testified.
Drew blamed the losses on executives under her watch who failed to control risks out of the London office. She said that undermined her oversight and kept her from preventing the losses.
Braunstein acknowledged that risk models for the trading operation were changed in a way that was improper early last year. The changes made the bank’s trading losses appear smaller than they were.
After the trading loss came to light, Drew resigned after 30 years with the firm and voluntarily paid back two years of salary.
She said Friday that while she doesn’t believe she bore personal responsibility for the losses, she decided to step down to make it easier for JPMorgan “to move beyond these issues.” Her comments were her first public remarks since leaving the firm.
The loss came less than four years after the 2008 financial crisis and hurt the reputation of a bank that had come through the crisis known for taking fewer risks than its competitors. Three employees in the London office were fired – two senior managers and a trader. It also led to Drew’s resignation.