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| JP Morgan's Jamie Dimon showed too much hubris and too little humility | JP Morgan's Jamie Dimon showed too much hubris and too little humility |
| (about 11 hours later) | |
| You could tell the exact moment when Ina Drew decided she had nothing left to lose. | You could tell the exact moment when Ina Drew decided she had nothing left to lose. |
| Drew, who ran JP Morgan's $350bn investment office, testified in front of the Senate today about the infamous London Whale trading debacle that racked up $6.2bn in losses for JP Morgan last year. She began her testimony by recounting her decades at JP Morgan "through seven mergers," talked about managing her job and her kids in a search for work-life balance, and gave credit to the "great CEOs" she had worked under, including current chief executive Jamie Dimon. | Drew, who ran JP Morgan's $350bn investment office, testified in front of the Senate today about the infamous London Whale trading debacle that racked up $6.2bn in losses for JP Morgan last year. She began her testimony by recounting her decades at JP Morgan "through seven mergers," talked about managing her job and her kids in a search for work-life balance, and gave credit to the "great CEOs" she had worked under, including current chief executive Jamie Dimon. |
| But Drew did not step up to take responsibility herself. She talked of trusting her deputies. She insisted that JP Morgan had provided its regulators with a daily account of the profits and losses in the bank's investment office – despite Senate documentation to the contrary and the testimony of a regulator who later directly said she was wrong, and that the bank only provided the daily account after the whole debacle blew up in May. When Drew was asked if she knew one key and obvious fact – whether JP Morgan had skipped a crucial yearly check on its trading limits – she demurred that she couldn't recall. | But Drew did not step up to take responsibility herself. She talked of trusting her deputies. She insisted that JP Morgan had provided its regulators with a daily account of the profits and losses in the bank's investment office – despite Senate documentation to the contrary and the testimony of a regulator who later directly said she was wrong, and that the bank only provided the daily account after the whole debacle blew up in May. When Drew was asked if she knew one key and obvious fact – whether JP Morgan had skipped a crucial yearly check on its trading limits – she demurred that she couldn't recall. |
| Drew, however, was one of the villains in the bank's own account of what went wrong, and you could see the pressure building up in her mind as she declined to answer, paused, or claimed lack of recall. She ran the office that racked up the losses, and according to the Senate report, she applauded traders for risky bets on American Airlines. | Drew, however, was one of the villains in the bank's own account of what went wrong, and you could see the pressure building up in her mind as she declined to answer, paused, or claimed lack of recall. She ran the office that racked up the losses, and according to the Senate report, she applauded traders for risky bets on American Airlines. |
| She told investigators that when her traders complained that the Whale trade was getting too huge to manage, "she never read the email". She never went to bat for Bruno Iksil, the head trader who openly complained the bank was playing with fire and taking "idiotic" steps to misreport its losses. | She told investigators that when her traders complained that the Whale trade was getting too huge to manage, "she never read the email". She never went to bat for Bruno Iksil, the head trader who openly complained the bank was playing with fire and taking "idiotic" steps to misreport its losses. |
| No other executive said anything remotely designed to exculpate her. Michael Cavanagh, the JP Morgan executive who conducted the bank's internal investigation, opened his testimony by proudly noting that the bank had engaged in "introspection" and was "determined to be a better company because of this experience". With a confident voice, he noted that the bank had thrown out the bad apples – it had either fired or "accepted the resignations" of the people "responsible" for the bad trades. That resignation he was referring to was Drew's. | No other executive said anything remotely designed to exculpate her. Michael Cavanagh, the JP Morgan executive who conducted the bank's internal investigation, opened his testimony by proudly noting that the bank had engaged in "introspection" and was "determined to be a better company because of this experience". With a confident voice, he noted that the bank had thrown out the bad apples – it had either fired or "accepted the resignations" of the people "responsible" for the bad trades. That resignation he was referring to was Drew's. |
| And so, minutes later, Drew gave a rare direct response. Carl Levin, the chair of the subcommittee on investigations, asked her about an incident in which she collared a bank regulator who was getting too nosy and "sternly" told him that Dimon knew about all the investment decisions in her group. Levin pressed on this: was Dimon – the "great CEO" she mentioned – informed throughout about what happened in her office, under her purview? Drew looked directly at Levin, pulled some strength into her thin voice, and gave the answer: "Yes." | And so, minutes later, Drew gave a rare direct response. Carl Levin, the chair of the subcommittee on investigations, asked her about an incident in which she collared a bank regulator who was getting too nosy and "sternly" told him that Dimon knew about all the investment decisions in her group. Levin pressed on this: was Dimon – the "great CEO" she mentioned – informed throughout about what happened in her office, under her purview? Drew looked directly at Levin, pulled some strength into her thin voice, and gave the answer: "Yes." |
| This was the most surprising moment in the entire London Whale debacle, and it will cause Dimon no end of trouble. | This was the most surprising moment in the entire London Whale debacle, and it will cause Dimon no end of trouble. |
| Dimon, the charismatic leader of the bank, had enjoyed a reputation as a tough, strict taskmaster, the kind of CEO every bank should have. While Vikram Pandit at Citigroup was seen as hapless, and mischievous Lloyd Blankfein at Goldman Sachs seen as flip, Dimon was the exception, the statesman of the financial sector. He was Good King Jamie. Even in Dimon's blustery moments, he enjoyed a reputation as one of the saviors of the financial system, the guy who ran the one bank strong enough to absorb both Bear Stearns and Washington Mutual. | Dimon, the charismatic leader of the bank, had enjoyed a reputation as a tough, strict taskmaster, the kind of CEO every bank should have. While Vikram Pandit at Citigroup was seen as hapless, and mischievous Lloyd Blankfein at Goldman Sachs seen as flip, Dimon was the exception, the statesman of the financial sector. He was Good King Jamie. Even in Dimon's blustery moments, he enjoyed a reputation as one of the saviors of the financial system, the guy who ran the one bank strong enough to absorb both Bear Stearns and Washington Mutual. |
| So as far as the London Whale debacle went, it had never seriously gone up to the executive office before now. Dimon's bonus was cut last year – to $11.5m – but that was seen as a gesture, a way to show shared sacrifice and compunction as the bank tried to show it had cleaned up its act. It showed that Dimon was willing to take the pain like everyone else. | So as far as the London Whale debacle went, it had never seriously gone up to the executive office before now. Dimon's bonus was cut last year – to $11.5m – but that was seen as a gesture, a way to show shared sacrifice and compunction as the bank tried to show it had cleaned up its act. It showed that Dimon was willing to take the pain like everyone else. |
| His chief financial officer, Doug Braunstein, also had his bonus cut in half. Others were fired. Some had their yearly bonuses "clawed back" by the bank. | His chief financial officer, Doug Braunstein, also had his bonus cut in half. Others were fired. Some had their yearly bonuses "clawed back" by the bank. |
| Dimon's testimony last year in front of the Senate was embarrassingly friendly, with Senators showing open admiration and even asking him to help them write regulation for banks. JP Morgan went on to write a self-flagellating public report about the London Whale debacle, slapping itself for being sloppy and stupid. It admitted its faults time and time again. It co-operated with Senate investigators and appeared to actually tell the truth. This was a good showing for a bank. Most banks react to crisis with furtiveness. Jamie Dimon, in this whole disaster, had nothing to be afraid of – and he showed it. | Dimon's testimony last year in front of the Senate was embarrassingly friendly, with Senators showing open admiration and even asking him to help them write regulation for banks. JP Morgan went on to write a self-flagellating public report about the London Whale debacle, slapping itself for being sloppy and stupid. It admitted its faults time and time again. It co-operated with Senate investigators and appeared to actually tell the truth. This was a good showing for a bank. Most banks react to crisis with furtiveness. Jamie Dimon, in this whole disaster, had nothing to be afraid of – and he showed it. |
| Dimon himself has always maintained that he knew very little about the way the London Whale trade metastasized. He did testify last year that he knew losses were increasing, but he pleaded ignorance to the details. He said he trusted his deputies – including Drew – to tell him when problems were occurring, and that he believed them when he said they were "comfortable". | Dimon himself has always maintained that he knew very little about the way the London Whale trade metastasized. He did testify last year that he knew losses were increasing, but he pleaded ignorance to the details. He said he trusted his deputies – including Drew – to tell him when problems were occurring, and that he believed them when he said they were "comfortable". |
| Drew's testimony this morning was the first real hole in this armor. It was to be followed by others. The Senate subcommittee on investigations had handed in a damning report, true. It indicated that Dimon knew as early as January 2012 that JP Morgan had breached its risk limits, and that he had personally approved raising them. | Drew's testimony this morning was the first real hole in this armor. It was to be followed by others. The Senate subcommittee on investigations had handed in a damning report, true. It indicated that Dimon knew as early as January 2012 that JP Morgan had breached its risk limits, and that he had personally approved raising them. |
| But the most damning moment of the hearing happened after lunch, when everyone was probably pretty sleepy and not paying much attention. Senator Levin asked a bank regulator with the OCC what had happened, how the regulator stopped getting information. The regulator said JP Morgan had stopped sending daily reports in August 2011. The OCC objected, and met with Dimon as well as CFO Doug Braunstein. At this meeting, the regulator said, Dimon said the bank was afraid of leaks, and that it was changing how it was distributing its information. | But the most damning moment of the hearing happened after lunch, when everyone was probably pretty sleepy and not paying much attention. Senator Levin asked a bank regulator with the OCC what had happened, how the regulator stopped getting information. The regulator said JP Morgan had stopped sending daily reports in August 2011. The OCC objected, and met with Dimon as well as CFO Doug Braunstein. At this meeting, the regulator said, Dimon said the bank was afraid of leaks, and that it was changing how it was distributing its information. |
| Dimon allegedly hammered the OCC regulator on why he needed the information – which, at that time, was standard and expected information for the regulator to have. "As Mr Dimon said: why we weren't going to get it?" the regulator recalled. Braunstein said he had already sent the reports. Dimon turned on Braunstein, the regulator remembered. "Mr Dimon said it was his decision whether to send the reports to the OCC." | Dimon allegedly hammered the OCC regulator on why he needed the information – which, at that time, was standard and expected information for the regulator to have. "As Mr Dimon said: why we weren't going to get it?" the regulator recalled. Braunstein said he had already sent the reports. Dimon turned on Braunstein, the regulator remembered. "Mr Dimon said it was his decision whether to send the reports to the OCC." |
| "Did he raise his voice?" Levin asked. | "Did he raise his voice?" Levin asked. |
| "He did," the regulator replied. | "He did," the regulator replied. |
| This moment was damning, as damning as Ina Drew's moment of truth earlier. It showed the pattern of bullying that JP Morgan showed towards its own regulator, and that Dimon himself had a hand in it. He prevented a bank regulator from getting necessary information, and, according to the testimony, personally kept that information out of the regulator's hands in August 2011. | This moment was damning, as damning as Ina Drew's moment of truth earlier. It showed the pattern of bullying that JP Morgan showed towards its own regulator, and that Dimon himself had a hand in it. He prevented a bank regulator from getting necessary information, and, according to the testimony, personally kept that information out of the regulator's hands in August 2011. |
| Levin also pointed out that the bank misinformed the OCC on losses – at times, telling the regulator that the bank was losing only $580m on the risky trades when JP Morgan's own internal numbers showed a loss of $1.2bn. It was compounded because since last year, Dimon and Braunstein had both said the bank's regulators were fully informed – which, as we now know, they were not. (On the stand, Braunstein, his mouth firmly set into a downward-facing crescent, denied remembering the incident at all.) | Levin also pointed out that the bank misinformed the OCC on losses – at times, telling the regulator that the bank was losing only $580m on the risky trades when JP Morgan's own internal numbers showed a loss of $1.2bn. It was compounded because since last year, Dimon and Braunstein had both said the bank's regulators were fully informed – which, as we now know, they were not. (On the stand, Braunstein, his mouth firmly set into a downward-facing crescent, denied remembering the incident at all.) |
| The upshot is that the Senate report and the hearing show that JP Morgan treated its regulators high-handedly. You might expect this of other banks, but JP Morgan was supposed to be the exception. It was not, however, the exception. Faced with deepening losses, it reacted the way any other bank would: with increasing panic, bad decision-making, and attempts to either erase the loss through more gambling or cover it up by publicly minimized the impact. JP Morgan showed it was sorry, but it also had a lot to be sorry for. | The upshot is that the Senate report and the hearing show that JP Morgan treated its regulators high-handedly. You might expect this of other banks, but JP Morgan was supposed to be the exception. It was not, however, the exception. Faced with deepening losses, it reacted the way any other bank would: with increasing panic, bad decision-making, and attempts to either erase the loss through more gambling or cover it up by publicly minimized the impact. JP Morgan showed it was sorry, but it also had a lot to be sorry for. |
| More importantly, this bullying, this panic, this misleading of regulators and the public, reflected badly on its popular, charismatic CEO. JP Morgan is too old and storied to be The House That Dimon Built. But Dimon was seen as the capable steward, the principled stalwart against bad behavior. It changes the narrative significantly to see that he had engaged in bad behavior himself. | More importantly, this bullying, this panic, this misleading of regulators and the public, reflected badly on its popular, charismatic CEO. JP Morgan is too old and storied to be The House That Dimon Built. But Dimon was seen as the capable steward, the principled stalwart against bad behavior. It changes the narrative significantly to see that he had engaged in bad behavior himself. |
| Dimon – and JP Morgan – have shown a lot of compunction. It's clear they are embarrassed by the London Whale debacle. But it is embarrassed for the wrong reasons. JP Morgan has indicated that it believes it got the facts wrong, that a group of people screwed up and those people are gone, and now the bank can go about its moral, principled way. The bank has repeatedly made it clear that a big loss – even of $6.2bn – cannot take down a bank with the size and strength of JP Morgan – a bank that has, in its own favorite phrase, "a fortress balance sheet". | Dimon – and JP Morgan – have shown a lot of compunction. It's clear they are embarrassed by the London Whale debacle. But it is embarrassed for the wrong reasons. JP Morgan has indicated that it believes it got the facts wrong, that a group of people screwed up and those people are gone, and now the bank can go about its moral, principled way. The bank has repeatedly made it clear that a big loss – even of $6.2bn – cannot take down a bank with the size and strength of JP Morgan – a bank that has, in its own favorite phrase, "a fortress balance sheet". |
| But this is not a math problem. This is an issue of culture. It's an issue of hubris, and lack of humility. What happened in the London Whale debacle was not an oversight of a single moment. It was days, weeks, and months of bad, entitled behavior. A few weeks ago, Dimon – resplendent, the picture of wealth in a fashionably cut black suit, snowy white shirt collar and cuffs and a trim haircut – lightly mocked an analyst who asked about how the bank compared to its rivals. Dimon made it clear that it didn't compare, that it would be a dumb decision to, say, move your money from JP Morgan to UBS. He followed by telling the analyst, "that's why I'm richer than you". I was in the room, and the comment played like fun sparring - the analyst was trying to get a rise from Dimon, and Dimon was showing that he was willing to play the game of wits. | But this is not a math problem. This is an issue of culture. It's an issue of hubris, and lack of humility. What happened in the London Whale debacle was not an oversight of a single moment. It was days, weeks, and months of bad, entitled behavior. A few weeks ago, Dimon – resplendent, the picture of wealth in a fashionably cut black suit, snowy white shirt collar and cuffs and a trim haircut – lightly mocked an analyst who asked about how the bank compared to its rivals. Dimon made it clear that it didn't compare, that it would be a dumb decision to, say, move your money from JP Morgan to UBS. He followed by telling the analyst, "that's why I'm richer than you". I was in the room, and the comment played like fun sparring - the analyst was trying to get a rise from Dimon, and Dimon was showing that he was willing to play the game of wits. |
| But this may be a good time for Dimon to be aware that sometimes, a CEO can come on too strong, that command-and-control has its responsibilities as well as its advantages, that humility and transparency are also virtues of leadership. Levin put it best at the end of JP Morgan's testimony today, in his folksy Michigan way, when he this to the executive: "You folks have indicated that you've taken steps to clean up that act. I hope that's true." | But this may be a good time for Dimon to be aware that sometimes, a CEO can come on too strong, that command-and-control has its responsibilities as well as its advantages, that humility and transparency are also virtues of leadership. Levin put it best at the end of JP Morgan's testimony today, in his folksy Michigan way, when he this to the executive: "You folks have indicated that you've taken steps to clean up that act. I hope that's true." |
| If Dimon is to restore his reputation, he has to make that effort to change true of him as well as of his bank. | If Dimon is to restore his reputation, he has to make that effort to change true of him as well as of his bank. |