Jamie Dimon’s email response was direct and to the point. “I approve,” he wrote to an oversight body within his enormous bank, JPMorgan Chase, thereby giving his blessing to an increase in the amount of risk the institution could shoulder. He also approved a change in the way a key trading unit was assessing threats of trouble in its then-burgeoning portfolio.
That email -- released late Thursday as part of a 300-page Senate report probing how and why Dimon’s bank managed to lose $6.2 billion on derivatives trading -- now appears to tie the chief executive directly to the disastrous decision-making at issue.
The trading occurred in the London offices of a bank unit known as the chief investment office, which was officially tasked with hedging against losses in JPMorgan's broader positions. The Senate report portrays the CIO as a locus of reckless speculation, asserting that executives with oversight ordered the manipulation of a key risk model to make its activities appear conservative.
According to the report, for four days beginning on January 20, 2012, the CIO’s trading exceeded the bank’s own acceptable risk measures by one metric. But the bank did not conduct an internal review. Instead, JPMorgan temporarily raised its risk limits. Then, on January 27, the CIO tweaked its very measure of risk: The change immediately cut in half the CIO's supposed risk, pushing it well below the bank's limit.
According the report, this effective manipulation enabled the CIO to triple the size of the portfolio that eventually produced its headline-grabbing derivatives losses in the first three months of 2012.
The email trail included in the report suggests that responsibility for this change goes all the way up to Dimon.
On January 23, the risk management group emailed the chief executive to ask for the authority to temporarily raise the bank’s overall risk limit. The same email informed Dimon that the CIO "has developed an improved" risk model that would cut the CIO's measurement of risk by nearly half. Dimon wrote back to approve the change, according to the report.
By May 10, amid media disclosures about the extent of the losses emanating from the CIO, JPMorgan forced the trading unit to revert to its old risk model, according to the report. That same day, when Dimon was asked on a call with investors and analysts why JPMorgan had changed its risk model in the first place, he simply said: "There are constant changes and updates to models, always trying to get them better than they were before. That is an ongoing procedure."
JPMorgan has maintained that it has transparently disclosed risks to regulators and the public throughout the trading in question.
"While we have repeatedly acknowledged significant mistakes, our senior management acted in good faith and never had any intent to mislead anyone," JPMorgan spokesman Mark Kornblau said in a statement to The Huffington Post Thursday night. "We know we have made many mistakes related to the CIO matter, and we have already identified many of the issues cited in the report. We have taken significant steps to remediate these issues and to learn from them."
Earlier on HuffPost:
Sanford "Sandy" Weill
The former <a href="http://www.huffingtonpost.com/2012/07/25/sandy-weill-cnbc-break-up-big-banks_n_1701274.html">Citigroup Chairman and CEO told CNBC in 2012 that</a> "we should probably... split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, and have banks do something that's not going to risk the taxpayer dollars, that's not going to be too big to fail."
Retired Citigroup chairman <a href="http://www.nytimes.com/2009/10/23/opinion/l23volcker.html?_r=0">John S. Reed wrote to the New York Times in 2009</a>: "Some kind of separation between institutions that deal primarily in the capital markets and those involved in more traditional deposit-taking and working-capital finance makes sense."
Phil Purcell, former chairman and CEO of Morgan Stanley, <a href="http://online.wsj.com/article/SB10001424052702304765304577480743265772620.html" target="_hplink">argued in a Wall Street Journal op-ed</a> that the big banks should break their divisions up into separate firms. "These businesses should be spun off to give the value to shareholders and let investment banks be owned privately -- hopefully largely by employees... so that the interests of the owners and bankers are aligned," he wrote.
Former Merill Lynch CEO, David Komansky, is another former megabank CEO calling for the breakup of "too big to fail" banks, <a href="http://economix.blogs.nytimes.com/2012/08/02/under-pressure-megabanks-rely-on-three-myths/" target="_hplink">according to Simon Johnson.</a> Komansky told Bloomberg TV that he <a href="http://www.bloomberg.com/video/59862858-komansky-says-he-regrets-role-in-glass-steagall-repeal.html" target="_hplink">"regrets" calling for the repeal of Glass-Steagall,</a> which allowed banks to become bigger than ever.
Former Citigroup CFO Sallie Krawcheck has argued that big banks are simply <a href="http://www.huffingtonpost.com/2012/06/12/sallie-krawcheck-jpmorgan-chase-loss_n_1588989.html" target="_hplink"> too complex to manage.
After announcing the end of his 16-year tenure on the board of <a href="http://www.bloomberg.com/news/2012-04-19/parsons-blames-glass-steagall-repeal-for-crisis.html">Citigroup, Richard Parsons told Bloomberg</a>, "to some extent what we saw in the 2007, 2008 crash was the result of the throwing off of Glass-Steagall. Have we gotten our arms around it yet? I don't think so because the financial-services sector moves so fast."
Scott Shay, the founder and chairman of Signature Bank, wrote in American Banker that <a href="http://www.americanbanker.com/bankthink/the-absurdity-of-too-big-to-fail-banking-1052812-1.html?zkPrintable=1&nopagination=1">"reinstating Glass Steagall should be the highest priority"</a> for financial regulators.