“Thank you, and I’d welcome any questions you might have.”
So closed the prepared remarks (PDF) of JPMorgan Chief Executive Jamie Dimon, who for more than two hours Wednesday appeared before the Senate Banking Committee to attempt to explain the megabank’s recent $2 billion loss on a hedge gone bad. While the Oxford English Dictionary lists welcome as a transitive verb, Dimon intended it in passive-aggressive form.
He obviously did not want to be out there. In a close election year amid a crummy economy, pols naturally want to feel your pain and flex (feign) their outrage, on as many pixels and soundbytes as they can get. Wall Street remains hated, and Dimon, a key beneficiary of the interventions of the financial bailout (see Bear Stearns and WaMu), is now—like it or not, fair or unfair—the face of the one percenters. As the exec took his seat in the Senate hearing room, a protester hollered, “This man is a crook, and he needs to go to jail!” before others started yelling, “Stop foreclosures now.” Those histrionics ended when Capitol police removed the protesters from the room. The real performance had only begun.
It took just weeks for Dimon’s trademark swagger to turn into defensiveness and contrition. In March, he celebrated his 56th birthday by announcing two days ahead of Federal Reserve schedule that JPMorgan had won approval to boost its dividend; the central bank was blindsided and had to push up its announcement. The message to D.C. was unmistakable: “You’re not the boss of me anymore.”
Today, in sharp contrast, Dimon had to wax apologetic to Washington. The strategy behind the blockbuster loss, he said, “morphed into something that, rather than protect the firm, created new and potentially larger risks. As a result, we have let a lot of people down, and we are sorry for it.”
Which was not enough to forestall this spanking from Ohio Democrat Sherrod Brown: “I don’t want to see consumer lenders in Columbus lose jobs because cowboys in London make bad bets.”
New Jersey Democrat Bob Menendez went after Dimon with an uncommonly suave usage of Shakespearean soliloquy: “Hedge or not a hedge, that’s the real question. Hedge doesn’t create a loss without a corresponding gain, that’s why you’re hedging. But you were selling a toxic instrument in CDS. When you hedge a hedge … isn’t that gambling?”
Dimon: “I don’t believe so, no.”
Menendez: “So this transaction that you said morphed, what did it morph into, Russian roulette?”
Dimon: “It morphed into something I just can’t justify, that was too risky for our company.”
Menendez: “And that is the real concern here. … If it’s too risky for your company, what stops it from being in the future too risky where you lose … $50 billion … that takes that bank into the possibility of a run and ultimately becomes the collective responsibility of each and every American? … I’m glad to hear you say … that we should ‘take comfort’ that banks are more collateralized. … Do you regret calling the efforts to get banks to hold more money ‘un-American’ and ‘putting the nail in our coffin’? … You railed against us when we were trying to pursue greater capitalization of these banks.”
Dimon: “I don’t think what you said is true. I supported parts of regulation and reform. I supported higher capital and higher liquidity. … We did not fight everything. When I mentioned the anti-American thing, I was talking about between Dodd-Frank and Basel things that were being skewed against American banks. …”
A key exchange between Dimon and Rhode Island’s Jack Reed illustrates how difficult it will now be for the rare good banker to emerge from 2008 to remain the torchbearer of Wall Street opposition to tighter regulations.
Reed: “How do we build in rules that prevent well-intentioned people from doing detrimental things? You’ve lost several billion in deposits and market value to shareholders. With a good Volcker rule, they would not have been able to do this, in my opinion.”
Dimon: “It may very well have stopped parts of what this portfolio morphed into. It’s possible. I just don’t know.”
Ultimately, for as cathartic it may have felt to bring out a banking exec and bloody his nose on national TV, it only offers a short-lived high. Dimon was until very recently the last and only voice of authority on the Street, a place that used to have the towering likes of Bob Rubin and Alan Greenspan to look up to. With the last of the credibles no longer, the Street desperately needs some (any) new hero.