UPDATE 2-Dimon says losses indefensible, still reform skeptic - Reuters UK
* Dimon says hedge would have made big money in a crisis
* Says hedge morphed into something he will not defend
* Warns that badly crafted Volcker rule could hurt markets
* Says pay clawbacks likely, will decide after board review
* Dimon rejects notion that JPM was bailed out during crisis (Adds comments from Dimon and corporate strategy expert)
By Dave Clarke and David Henry
WASHINGTON, June 13 (Reuters) - JPMorgan Chase & Co Chief Executive Jamie Dimon told lawmakers that he could not defend how a hedging strategy in a London office morphed into a multibillion-dollar trading loss, but he still took swipes at regulatory reforms that he said fail to make sense.
The Senate Banking Committee was mostly gentle with the polished and relaxed banker at Wednesday's hearing, and did not force him to reveal whether the estimated $2 billion loss has significantly swelled.
Dimon apologized for the self-inflicted loss that he said started as a genuine hedge that would make the firm a lot of money if a credit crisis hit.
Lawmakers have questioned whether the trades were truly a hedge or a speculative bet that was hidden from shareholders and regulators.
"This particular synthetic credit portfolio was intended to earn a lot of revenue if there was a crisis. I consider that a hedge," Dimon said. "What it morphed into, I will not try to defend."
But Dimon was not so chastened that he backed off of his long-standing criticism of Washington reforms.
The 2010 Dodd-Frank financial oversight law, he said, has produced a swarm of uncoordinated regulators, and he warned policymakers that they must smartly craft the Volcker rule that will ban banks from making speculative bets with their own money.
Dimon said Washington must not overreact to JPMorgan's trading loss and create such narrow exemptions that it hurts financial markets.
"We have the widest, deepest, and best capital markets in the world. It would be a shame to shed that out of anger."
Michael Robinson, executive vice president at Levick Strategic Communications in Washington, said that Dimon was wisely apologetic about the trading loss and also held his ground during a few moments of tough questioning.
"Jamie Dimon tip-toed through the minefield and came out the other side. That's a victory." Robinson said.
Shares of JPMorgan, the largest U.S. bank by assets, appeared to get a boost from Dimon's appearance. In afternoon trading the stock was up 2 percent, outperforming the 0.3 percent rise in the KBW Bank Index.
The hearing got off to a rocky start, however, when a handful of protesters yelled out "Jamie Dimon is a crook" and "stop foreclosures now" before being escorted out of the cavernous hearing room.
'DEAD WRONG'
Dimon revealed during a surprise conference call last month that a hedging strategy in its London office had gone awry, producing at least $2 billion, and possibly $3 billion, in trading losses.
That was after Dimon in April dismissed as a "tempest in a teapot" news reports that Bruno Iksil, a trader dubbed the "London whale", had amassed an outsized position that prompted hedge funds to bet against it.
Dimon said he made that statement after senior executives and risk managers told him they thought any problems in the London Chief Investment Office were an isolated, small issue.
"When I made that statement, I was dead wrong," Dimon said.
The trading loss has renewed focus after the 2007-2009 financial crisis on whether big banks are too big to manage and has made some nostalgic for the repealed Glass-Steagall Act that separated commercial banking from more risky activities.
Dimon said the failed hedging strategy sprung from a firm-wide effort to reduce risky assets to prepare for the rollout of new capital standards agreed to as part of the international Basel agreement.
Dimon said the bank could have simply reduced the amount of these risky assets on its books but the CIO office instead, starting in mid-January, "embarked on a complex strategy" that involved adding positions traders believed could offset the existing risky assets.
In hindsight, the strategy created even more hard-to-manage risks in the synthetic credit portfolio.
The situation was not detected sooner, in part, because the CIO unit, also in January, changed its risk model in a way that disguised that the risk-taking had roughly doubled.
The firm did not disclose the risk model change in a timely manner, which experts said could be a focus of the Securities and Exchange Commission's investigation into the trading losses.
The Commodity Futures Trading Commission and FBI have also said they are looking into the losses.
WHAT DIMON KNEW
Dimon has said he was generally not aware of the CIO unit's activities, but revealed on Wednesday that he did receive a copy of a January memo that mentioned that the value-at-risk (VaR) model had changed.
"I was copied on a memo that said there was a change in the VaR model, so that is going to come out," Dimon said in a CNBC interview minutes after the hearing. "I paid virtually no attention to it."
He also said he did not learn before late April that the new model was badly flawed.
Dimon said repeatedly during the hearing that the bank's senior management failed by not detecting the London office's spike in risk, and said the bank will consider taking back pay from certain executives once the bank's board is done with their review. "I would say it's likely... there will be clawbacks," Dimon said.
Dimon said the lesson he learned from the trading debacle is, "Never, ever get complacent with risk."
BAILOUT BLUSTER
Senators asked about the state of the losses, but did not demand that Dimon give a detailed update on the portfolio, which JPMorgan is still unwinding. The bank is expected to provide more information to shareholders when it reports its second-quarter results in mid-July.
Dimon did say that the bank's "fortress balance sheet remains intact" and that he expects the second quarter to be solidly profitable.
Democratic Senator Robert Menendez seized upon Dimon's comments and reminded him that JPMorgan received $25 billion in federal support during the financial crisis.
"I think about the fortress balance sheet you talked about and I would like to remind you that the fortress balance sheet has a moat that was dug by taxpayers... So it seems to be that the American people are a big part of making your bank healthy," Menendez said.
Democratic Senator Jeff Merkley also pointedly reminded Dimon that JPMorgan, now the nation's largest bank by assets, received Troubled Asset Relief Program assistance during the financial crisis, which provoked a testy response from Dimon.
"I think you were misinformed. I think that misinformation is leading to a lot of the problems we are having today. JPMorgan took TARP because it was asked to by the Secretary of the Treasury of the United States of America," Dimon said.
Dimon is scheduled to appear before the House Financial Services Committee, along with bank regulators, on June 19. (Reporting By Dave Clarke, Alexandra Alper, David Henry and Aruna Viswanatha; Additional reporting by Rick Rothacker in Charlotte, N.C.; Writing by Karey Wutkowski; Editing by Tim Dobbyn)
RSS chief expresses displeasure at ousting Sanjay Joshi from BJP - Hindustan Times
A senior sangh pracharak, who preferred anonymity, claimed that the recent editorial in BJP mouthpiece ‘Kamal Sandesh’ that no leader should consider oneself bigger than the party was in fact, Bhagwat’s opinion, which he is believed to have echoed before his close lieutenants. That Modi had his way on Joshi’s exit was also considered as the former’s sheer display of arrogance, driven by a clash of egos by the Sangh Parivar.
According to him, the Sangh preferred to keep mum on the whole "drama" in view of the ensuing Gujarat elections and a smooth passage for Nitin Gadkari’s re-election as party president.
Moreover, the Sangh Parivar did not want a message to be sent across that Gadkari’s re-election to the BJP top post by amending the norms in the national executive did not have a powerful leader like Modi’s approval, who also considered a face of ‘Hinduvtava’ and his ever-growing clout in the party.
Joshi, first sent to the BJP by the RSS in 1988 to use his organizational skills in building the party in Gujarat, had to leave in 2005 over a sleaze CD. After taking over as BJP president, Gadkari rehabilitated Joshi -- his childhood friend -- in view of his organizational ability and entrusted him the job of Bihar and UP elections. Joshi was also included in the national executive, which did not go down well with Modi. Joshi’s friend-turned-foe Modi refused to campaign in the UP elections for the party and unofficially boycotted the national executive. Moreover, of late, the Gujarat chief minister was not even taking Gadkari’s phone calls.
When Gadkari rang up Modi on May 23, just before the national executive at Mumbai and requested him to attend, the Gujarat chief minister laid down the condition of Joshi’s axe from the executive.
Gadkari, a darling of Bhagwat, tried to use his good offices in RSS for intervention, but in vain. The BJP president did not dare to take risk when the senior party leader Lal Krishna Advani blogged questioning his leadership and other senior party leaders including Sushma Swaraj and Arun Jetlay were hostile. He narrated the entire things before Joshi who "sacrificed" himself for his friend to pave way for Modi attending the Mumbai meet.
But as pro-Joshi posters appeared in Delhi and some places in Gujarat, Modi made a telephone call to Gadkari, asking the latter to either relieve him from his chief minister’s post or Joshi from the party. Faced with this ultimatum, Gadkari made yet another crafty move by making Joshi to resign as BJP’s election in-charge of UP.
However, the RSS headquarters claimed that Joshi would be honourably re-inducted in the organization after Gadkari’s re-election the December Gujarat elections are over this year. It was said that he would be given an important task of Madhya Pradesh and Chhattisgarh elections to be held in October next year, the pracharak claimed.
Given a belief held by section of RSS cadres, it seems that the RSS would not tolerate Modi’s arrogance for a long. The RSS, which is literally directing the BJP affairs, may take on Modi after the Gujarat polls and Gadkari’s re-election by end of this year.
The senior RSS leader and former Buddhik Pramukh of the saffron organization, MG Vaidya, said that the party is bigger than any individual. “The Modi-Joshi tussle is not good for the party,” he pointed out.
Meanwhile, neither Gadkari nor Bhagwat was available for comments. Joshi who was here to attend a meeting of RSS said that he was still in the BJP. "I have only relinquished the national executive and UP in-charge. I am still a primary member of the party," he said.
Talking to Hindustan Times, he also dismissed the rumours that he would be given the job of Vanvasi Kalyan Ashram by the RSS. Joshi met Vaidya during his Nagpur visit and had a long discussion.
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