As JPMorgan Chase & Co. began to plot its Washington damage control strategy in the wake of last month’s $2 billion trading loss, the bank realized it needed some help with Republicans.
Although traditionally sympathetic to Wall Street, Republican lawmakers in both the House and Senate not only weren’t rushing to JPMorgan’s defense, some were agitating for congressional hearings and investigations. Republican aides acknowledged privately that lawmakers were enjoying that Chief Executive Officer Jamie Dimon -- a Democrat once known as President Barack Obama’s favorite banker -- was having a comeuppance.
JPMorgan’s government relations unit countered quickly: Mel Martinez, a former Republican senator who is a regional chairman for the bank, was called up from Florida to talk with some old colleagues. Nate Gatten, a former Fannie Mae lobbyist who works in JPMorgan’s London office, flew back to Washington and checked into a hotel for an extended stay.
They jumped in to the fray, as the bank fielded some 150 inquiries from congressional offices and agencies. The team includes several other Republicans and prominent Democrats, like the head of JPMorgan’s Washington office, Naomi Camper, a former senior staff member for Senate Banking Committee Chairman Tim Johnson, and Peter Scher, a former Clinton administration official, who oversees government relations globally.
Dimon’s testimony before the Senate Banking Committee tomorrow will be the first sign of whether JPMorgan’s efforts have been effective in tamping down the political firestorm set off by the trading flap. Unlike other large banks who tend to hire high-powered consultants and spin doctors when faced with a crisis, JPMorgan is relying mostly on its own in-house team which Dimon has been building up over the past four years.
“We wanted to take ownership of this and use our own people,” Scher said in an interview. “We knew that the concerns and questions were for us alone.”
JPMorgan did hire one outside firm, the BennettGroup, run by ex-Utah Republican Senator Robert F. Bennett. While Bennett is still barred from lobbying, the bank has been using P. Michael Nielsen, a Republican former senior policy adviser on the Senate Banking Committee, to help answer lawmaker queries.
There is much at stake for JPMorgan. The trading debacle has cost the bank some $27 billion in market value and dented Dimon’s reputation as the banking executive who most successfully navigated the 2008 financial crisis.
The heightened scrutiny of the bank has reverberated throughout the financial industry as regulatory agencies like the Federal Reserve and the Securities and Exchange Commission take a new look at tightening regulations like the so-called Volcker rule banning proprietary trading. Even more broadly, some argue lawmakers may need to look at new ways to rein in the largest banks.
“When the best managed, best led bank in the world can have this kind of blunder happen, it just confirms no matter how good your management is, no matter how tightly you try to regulate and oversee these mega banks, they are just too big to get your arms around,” said Camden Fine, president of the Independent Community Bankers of America, a small bank trade group. “This is something that the Hill will have to grapple with.”
Wall Street has a vested interest in the outcome, particularly in preventing the furor from convincing regulators to tighten the Volcker rule, which could limit the kind of proprietary trading at issue. As a result, JPMorgan’s large bank competitors haven’t moved to take advantage of its troubles. Some are even helping them strategize about how to deal with the controversy.
That includes Goldman Sachs Group Inc., usually one of JPMorgan’s fiercest competitors. According to people with knowledge of the situation, several of Goldman Sachs’ Washington lobbyists have been brainstorming with their JPMorgan counterparts on tactics and messages. One piece of advice: Pull the Band-Aid off fast and explain in as much detail as possible what happened, the people said.
That comes from experience. Goldman was in a similar situation two years ago when its CEO, Lloyd Blankfein, was summoned before a Senate panel to discuss the firm’s role in fueling the subprime loan crisis.
Blankfein, though contrite at times, didn’t win many plaudits for his testimony, which often relied on technical definitions of market making to explain why the bank was on the other side of a trade from its clients. Those answers so angered Senator Carl Levin that the Michigan Democrat accused Blankfein of misleading Congress.
Much of the work JPMorgan is doing these days to explain the loss isn’t considered lobbying in the traditional sense. They aren’t pushing for legislation or weighing in with regulators on the issues. Instead, the bank is in what lobbyists call a “franchise protection mode:” trying to push its story about what happened and pave the way for a smooth hearing for their CEO.
One of the bank’s key arguments to lawmakers and Obama administration officials has been that the trading loss, while large, is not close to being an event that could shake the financial system or even imperil the bank. While JPMorgan and its shareholders are feeling pain, they stress, no taxpayer funds are on the hook.
In private conversations with lawmakers and staff, the bank has fielded questions about deposits, emphasizing that customer deposits were never in jeopardy. The bank is also reminding them that there was plenty of capital to cover this type of loss.
The bank’s Washington office has also been warning lawmakers and staff that Dimon may not be able to provide answers to all their questions. JPMorgan reports earnings in mid-July, so Dimon won’t be able to speculate on the eventual extent of the losses. The bank has said the tally was at least $2 billion and could grow. There is also an internal review under way.
“This is not an issue you lobby on,” said Scher. “There are legitimate questions from members of Congress and agencies, and our strategy has been to be as open and as responsive as we can be.”