JPMorgan CEO to Congress: Sorry for losses, but bad trade an 'isolated event'

JPMorgan Chase Chief Executive Jamie Dimon will apologize to lawmakers for allowing his bank to suffer billions in losses, but maintains that the disastrous trade was an "isolated event."

In prepared testimony before the Senate Banking Committee, Dimon will emphasize that no taxpayer money is at risk thanks to the losses, asking lawmakers to maintain perspective on what they represent.

"We will not make light of these losses, but they should be put into perspective," he will say. "We will lose some of our shareholders’ money — and for that, we feel terrible — but no client, customer or taxpayer money was impacted by this incident.

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"We have let a lot of people down, and we are sorry for it," he will add.

In his remarks, Dimon will describe how traders in the bank's chief investment office failed to appreciate the risks they were taking in making a complicated bet on corporate debt that was actually intended to reduce risk for the bank.

Senate Banking Committee Chairman Tim JohnsonTimothy (Tim) Peter JohnsonTrump faces tough path to Fannie Mae, Freddie Mac overhaul Several hurt when truck runs into minimum wage protesters in Michigan Senate GOP rejects Trump’s call to go big on gun legislation MORE (D-S.D.) will call the bank's move "an out-of-control trading strategy with little to no risk controls." In a prepared opening statement, he will also cast doubt on Dimon's claim that the move were really intended to reduce risk.

"How can a bank take on ‘far too much risk’ if the point of the trades was to reduce risk in the first place?  Or was the goal really to make money?" he will say. "As the saying goes, you can’t have your cake and eat it too."

The losses stemmed from what Dimon describes as a "synthetic credit portfolio," a pool of investments the bank holds in an attempt to hedge against systemic events like a financial crisis — he notes that the portfolio performed as expected during the meltdown of 2008.

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The bank actually ended up in this dangerous position in an effort to reduce risk on that portfolio, according to Dimon. As the bank prepared for heightened capital requirements coming from bank regulators, the chief investment office was instructed to reduce risk, including in the synthetic portfolio. Instead of simply reducing investments in the portfolio to manage risk, the office instead tried to offset the existing risk by taking on new investments that would theoretically offset it. Instead of making the portfolio smaller, it became larger.

However, the strategy was "poorly conceived and vetted," and traders did not understand the risk they were taking on, according to Dimon. He will add that personnel in key roles within that investment office were "in transition" at the time, and that existing risk-control functions were "generally ineffective" in challenging the mistaken judgment of the traders.

Dimon will promise that the bank is conducting a top-to-bottom review of what happened, and is revamping how it handles risk in that office — and will add that the lessons of this mistake will be applied to the entire bank.

"When we make mistakes, we take them seriously and are often our toughest critic," his testimony reads. "In the normal course of business, we apply lessons learned to the entire Firm. While we can never say we won’t make mistakes — in fact, we know we will — we do believe this to be an isolated event."

Updated at 5:31 p.m.