that's what i'm a little sad about. i don't think you're going to get the answers you're looking for. >> we'll wait for the earnings when they come out mid-july. >> maybe you'll feel better. i don't know if you're ever going to feel good enough. >> try and sneak in there. just start asking questions from the back of the room. just raise your hand. >> raise my hand? just say, i just saw bob corker. maybe i can hook up with him and do it. >> got to go. thanks, andrew. join us tomorrow. "squawk on the street's" next. ♪ die diamonds are forever >> these were mistakes. they were self-inflicted. we're accountable. what happened violates our own standards and principles by how we want to operate the company. >> nearly five weeks after that now infamous conference call jamie dimon, ceo of jpmorgan chase testifies before the senate banking committee today about those costly trades. at issue, dimon's reputation.

also the point at which banks in this country are simply too complicated to manage. i'm carl quintanilla, along with melissa lee, david faber, jim cramer at the nyse. two day roller coaster. triple digit losses monday. guided back tuesday. dow at its highest level since may. europe inches toward this weekend's greek elections. a lot more on what yields are doing over there in a moment. our road map starts on capitol hill. all eyes on dimon. will this hearing lay the groundwork for tightening of the volcker rule and a tougher regulatory environment for banks across the board? >> cramer says the market is one big rumor mill. we are going to travel to cramerica for some answers. not lovining it.

>> business news on the web is about to change thanks to us. cnbc forging a strategic alliance with yahoo! finance. we will be the premiere content provider for the yahoo! finance network. first, jp morgan chase ceo jamie dimon set to testify in about an hour from now. his testimony comes exactly two months to the day that dimon called concerns about the bank's trading a tempest in a teapot. in his prepared remarks dimon says traders in jpmorgan's chief investment office did not understand the risk they took. he also says this portfolio 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. despite the losses dimon says he expects jpmorgan chase to be solidly profitable in the quarter and the bank's portrait balance sheet remains intact. jim, what's most important to you. >> when did he know it?

what did he know? most importantly, i've seen it in 31 years in wall street when you have a rogue internal office, a rogue desk, they white out the run. that's a technical term. white out meaning they dissemble. meaning that perhaps he didn't have the numbers. either that or he had the numbers and he was on a permanent intellectual vacation which would be difficult. because that means you take a vacation to go with a permanent intellectual vacation. >> in his prepared remarks it sounded like he left it up to the cio office. it sounded like in the testimony, at least, that was released last night, that he was simply saying they knew about it. i didn't know. i don't know if that removes any sort of culpability on his part. it may almost be worse. >> i didn't know the cio was the big private center. i didn't know the cio was where they made the quarter. i didn't know, by the way, it

was purely a hedge. you don't go to congress and talk about directional -- because volcker is anti-directional trading. >> another element of this, though, is the actual trades themselves. "the new york times" a couple of weeks back had detailed the -- one of the key investors on the other side. a gentleman named boaz weinstein who runs about a $5.5 billion credit fund. what struck me about that and so much of the reporting about this, both our own and those of others, we're talking about the credit default swap market in which, yet again, bets are being made. it really is in many ways akin to gambling. because bets are being made -- >> no. gambling is honest. it's open. there's a nevada gaming commission. >> gambling is regulated. >> one wonders whether the senators at least will focus on that part of this story. you are talking again about making bets on something that's completely separate from what you're actually -- they're not

insuring their own debt they hold on a corporation. it is simply bets on whether or not your neighbor's house is going to go on fire or anything else. >> don't you love the fact if you're a private client like i am of jpmorgan, they were giving you the opinion that you should bet completely against what turns out to be jpmorgan's position. the private clients, hey, i got to hand it to them. they gave us the right stuff. but they said do not do what the cio is doing. this is, again, the kind of massive conflict i see at this bank that had a halo. this does not have a halo anymore. >> it turned out to be a $2 billion profit on these trades, jim, we would not be having this conversation. there's something wrong with that. >> it was a trading error. it was an incredibly large mistake. the fact is that if a mistake goes for you, maybe we wouldn't know it. but it would be just as it shs

would be horrendous to have the mistake go for you. internally someone did not know this error was occurring. but it's an error. and errors are not allowed. particularly at jamie dimon's bank. >> the point being again they thought they were undertaking risk mitigation when, in fact, they were actually exacerbating ri risk. >> is this aig? >> it's not. there are par lallelparallels. we recall aig fp run from london. they were doing a lot of -- we'll take that. we'll give you insurance. there was an element of it. no. the parallels end there. >> do these instruments work? they're selling these instruments to all their clients. obviously they don't know how they work for themselves. >> they're making profitable business. we don't have transparency. we don't have that exchange we've been promised for quite some time. >> in terms of jpmorgan, jamie

says they're going to be solidly profitable in the quarter. that sounds good at first glance. but we don't know what that includes. on what basis are they solidly profitable? and i think the question now for investors, jim, is, is jpmorgan already punished for this error? seems like a $30 billion slice off the market capitallation of the stock is punishment. at this point does it simply face all the head winds it other competitors face, whether it be a tightening of the regulatory environment or head winds out of europe. there are industry specific head winds here, not jpmorgan specific head winds. >> true. they weren't punished. the shareholders were punished. sf the executives are not punished. i'm looking through the testimony for where he's giving back the money he made. i didn't see that. >> it's not in there. >> shareholders gave back considerable money. they had faith. you, when this first came out, expressed a level of outrage that i'm still feeling. which is that the shareholders paid.

the shareholders always pay. they pay the legal bills. the shareholder pays in terms of market gap -- >> senator johnson's point last night, he released a response to jamie dimon's prepared testimony. if you have cake, you have to eat it, too. essentially if you're going to lose from the trading losses, from the trading positions, you can also gain. same thing with the shareholders. you lose sometimes but you also gain. if this had been a $2 billion profit shareholders would have gained. >> they would have. >> to that point, jim, shareholders are always gambling on a bank. >> hold it. >> i'm just playing devil's advocate here. >> banks are going to lose money. that's okay. >> that happens. >> greenspan would say that's how inefficient capital is eliminated in the economy. >> a directional bet that goes against you is one thing. a hedge that you don't understand that is a mistake is another. mistakes, we are -- any of us who are -- you were at fwoegold

sachs. you had a mistake in trading. it doesn't matter whether it went for or against you. it was a mistake. it was a black mark on you. where are the black marks on you? i once bought 50,000 cvs. i accidentally bought cbs. when you make a mistake, people pay. it's not in this case people at the top. it's gremlins in london. >> it still is something you cannot understand even if you are the most diligent of researchers. you would not have found any real reference to the cio in any of their reports, quarterly or annual, of any significance or understood what they were really doing. that may be another reason why the multi -- >> the evolution of that office came through chemical bank which is all part of -- it's all part of as banks have gotten larger. jamie, for better or worse,

helped create with his mentor one of the biggest financial conglomerates we've ever seen. >> my first bank was chemical, chase, jpmorgan, bank one. all one bank now. let's not forget. >> amazing. >> they do seem to have a rogue office. i want to go back to the idea, did they have the so-called whiteout? did they hide it from jamie dimon? are there -- what kind of controls did they really have? and i think the financial times has an amazing article today about what would happen if jpmorgan blew up. obviously the fortress balance sheet. is it enough, guys? is it enough that he apologized and said he screwed up? is that enough in america? do you think that he shouldn't have to give up some of the millions of dollars he made, like the shareholders had to give up what they've made? >> what kind of precedent would that set for other bank executives? if jamie dimon gives back because of a trading mistake, how many clawbacks will there

be -- i'm not saying they're bad or good. imagine, imagine the fallout. the dominos. >> the real rich, they can handle it. i tid badly with my hedge fund in 1998. i waved my profits. i was embarrassed i did badly. it wasn't a trading mistake. >> most hedge fund managers don't do that. a lot of them are looking for discounts -- >> he's better than everybody else. i expect him to act better than everyone. >> set the example, in other words. >> yeah. there's nothing wrong with giving up your pay. these people make millions and millions of dollars. they have municipal bond accounts that are bigger than countries. it is perfectly -- it's perfectly okay to say, you know what? i made $20 million, whatever you made, and i'm giving it back. >> the senate's going to give him a hard time today. that is clear. >> unless you look at as a post lays out today, democrats and

republicans -- >> chairman johnson himself. single largest contributor from 2005 to 2010. >> the om justice will be at the front page of the "new york post" where they have the list of five that visited a madam. having to pay with their careers. you can have gigantic trading losses that were mistakes. you just say i'm sorry. the guys who really pay, the johns. how do you like that? a little johns action. >> there he is. walking down the hall. >> never looked better. >> i like the purple tie. would have gone with that, too. good choice. >> you don't have that little nip -- that little thing in your tie. >> looks calm. smiling. >> that's a live picture. part of his persona is that of a combative banker. likes to mix it up with meetings. he's going to talk to mary thompson one on one after the hearing. one question will be, to what degree does he keep his cool?

does he start the return service if these senators really give it to them. >> he apologizes. he says i'm sorry. who's jpmorgan's man on the committee? al law. always somebody on the committee. someone on the committee that always kind of helps it all. makes it so that it's not so bad. >> he doesn't lack for confidence. i look forward to watching. >> i'm serious about this. because the shareholders have paid. these guys -- i'm sorry. you say i'm sorry, do you feel bad? is it like a crisis of confidence? is there some sort of -- do you have -- is this an existential moment for jamie dimon? >> you're like ali mcgraw. banking means you never have to say you're sorry? >> you say you're sorry. still get paid a lot of money. everyone else in america says i got to get that job. that job's a good job. i can screw up. hold billions of shareholders' pay. i make my money. what a super job. i want that job.

i want that job. >> you got a pretty good one yourself. >> not bad. want to move on here. we have some very exciting news on the home front this morning. cnbc, the world leader in business news is forming a strategic alliance with yahoo! finance, the leading online destination for financial news. the partnership immediately expands the reach of our signature realtime information and analysis to now include more than 40 million online users in the united states. cnbc becomes the premiere content provider for yahoo! finance's stories and videos featured across its network. makes it more convenient for the quality insight you want online and in your mobile device. it will also create co-branded online video programs for yahoo! finance and cnbc.com. very important day here. >> i think people have to understand that this is how most people get their news. >> it is. >> you have an individual stock. you look at it. one of the things that i tried to do on this show, we all tried to do, prevent enough stocks

that people care about so that we have information on them. but the way america works these days, okay, listen. i own scott's miracle grow. they haven't mentioned that. i'm going to yahoo! see what's said. well, maybe there'll be something from us. >> very, very sticky service. despite all the ups. now a lot of downs at yahoo!. yahoo! finance. >> did you use it? >> i never did use it. i always used cnbc.com. >> now you can use both. >> amazing how many -- that they have kept those people from the early stages of yahoo! >> i use the street. i use yahoo!. i use cnbc.com. mobile, i use yahoo!. it's fast. >> now you can use both. of course, the convergence of video and everything else is the future. when all of us are watching television on a broad band that's being provided by our wi-fi television that's up in the living room. >> all right.

today, over 100 ceos are conv e convening in washington for business round table's quarterly meeting. they may even talk about jamie dimon. on the agenda, yob creation, growing economy and the need for tax reform. mitt romney will deliver the keynote address at noon. joining us from the meeting site in washington, terry, how have you been? >> good. >> i need to know how father's day is going, though? >> pardon me? sf >> how is father's day. >> we are having another father's day this year, jim. i hope you get as many great presents from macy's as you got last year. i suspect it's going to be another good father's day for us. >> you probably don't need to suspect it because you fwet daily numbers. how do they look? >> as you know, as you've been a te terrific supporter of our stock, we've had a terrific run.

entries of over $1 billion a year on same store sales growth. we feel pretty darn good about the results of our company. >> terry, home values, stock values, job security and most importantly, gasoline prices down 10% in the last month. which is providing the biggest spur to your same store sales? >> i think gas prices is a -- is a very important issue for us, for the macy's customer in particular. i think that does, in fact, matter. when you're spending $100 to fill up your gas tank, you're making that decision, you're probably going to go to one spot to shop. frankly, i think going to the shopping mall is a good bet in that case. so -- but i do think the lower fwas prices is giving the consumer more money to spend on other products that are discretionary. >> terry, i want to understand better the market share gains that you've been seeing from jc penney. a lot of analysts will poind out

the areas of overlap were very concentrated between jc penney and macy's. are you continuing to see the same pace of market share gains you saw in the beginning when ron johnson took over and announced his initial pricing plan? i'm curious. the confusion about that pricing plan is actually helping you continue to gain share. >> >> the truth is, there's quite a bit of activity. not just jc penney but other retailers as well that are changing their strategy and trying something different. in our case, we've had this focus on the customer and focus on driving growth in our company now consistently for several quarters. so we're on this. we're not changing it. it's not just working against one competitor. i think it's working against multiple competitors. we clearly are taking market share in multiple categories. >> terry, i see a lot of coors

products. at one point does coors become too big of a competitor? >> i used to give ralph lauren a lot of grief. he convinced me that by opening stores in the malls, that would carry products beyond what i would normally buy, the high-end product, most fashionable fwood that would be higher risk for a mark down would actually enchance the brands. the customers would, in fact, shop at macy's where they can buy another brand or a pair of shoes or some home products. he wasn't carrying it in his stores. ultimately that test has proven to be recollect. having said that, to your point, there is a point when it's too much. they're testify nitly nowhere near that point at michael kors. i don't think they've reached that point with ralph lauren. my business with both of those

brands has been terrific. >> has martha stewart reached that point? >> they don't have the product. so far that business continues to be very good. i think they're planning on it being exclusive when we go forward. >> when ron johnson says it's going to be a big edition, ron jonss may not know. he may not have the goods there. >> yeah. not the goods that we're carrying. that's our exclusive agreement. until the court decides otherwise, we're going to continue to sell the textiles and the key products that sell in the kitchen. >> thank you. terry, couple of things. i know you're there. the business round table, before we get to that. cotton prices have been coming town. any impact on our business there? is there ability to pass that on to the consumer or cost of transportation perhaps going up so it evens up? >> i don't think that will show its head later in the fall season. we order about six months in advance of receiving the product. the cotton prices are going to be lower in the stores starting

in the second half of this year. i think definitely we'll be able to pass along a lot of those pricing reductions to the consumer. >> terry, one of the two conference calls that we had last before when we talked to you, were on nordstrom's. i got to tell you, i own tiffany. we're hearing over and over again the highest end weakness in designer apparel, jewelry, you're not seeing that, are you? >> not yet. again, you may see it, jim, as 90% of my sales and earnings. so we cover a very broad spectrum. while we're the largest seller of most brands we carry, we have every price point. but mostly in the middle -- we've catered to the average household income in america that's under $100,000. $75,000 in many markets. so that we haven't faced the same issues that have been tribed by tiffany.

>> one last question on politics. mitt romney is going to deliver the keynote at noon. we've had him on our show. we've talked about what's happening with jobs in this country and how much of it is related to corporate uncertainty regarding europe. 10-1 agreement as more of a to mesic responsibility on the part of the president. is there going to be a push to tell the governor, hey, there's something serious in europe going on. >> there's plenty of solutions that are out there. that's what the business round table does. we come together with ceos of a common interest. create jobs in america. stimulate economic fwroet. we've got ideas. we're sharing those ideas. we want to know mitt romney is going to listen to the ideas. we want to know he's going to break the gridlock we've experienced here in washington without any agreements accomplished. that's what i want to hear. how is he going to make more progress than the current administration doing. we want to hear from the current administration what they're going to do to make more progress than what they've been

able to make this far. >> terry lund gren, great job as always. thank you so much for coming on "squawk on the street." >> thanks very much. still to come this morning, jpmorgan chase ceo jamie dimon makes his way to capitol hill. coverage of his testimony before the senate banking committee. begins 10:00 a.m. eastern time on "squawk on the street." meantime, futures down 30. we're back in just a moment. tdd# 1-800-345-2550 the spx is on my radar.

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tape tape coming in moments ago. jamie dimon walking in to testify before the senate banking committee on those costly trades over at jpmorgan chase. his testimony begins in a little more than a half an hour. of course, we'll bring that to you live. in the meantime, four minutes before the bell. time for the mad dash ahead of the market open. interesting call as jpmorgan ups johnson & johnson to overweight. >> i think also jeffries did, too. three upgrades in one morning. either a breakup of this company into several companies or this new ceo whom i like very much has got something up his sleeve that's gigantic. not just the medical device deal. this stock is done going down. the weld in europe is over. it's about the way it used to be about j & j. well run and making money. >> jpmorgan's call is not based

on a break up. they don't think that's going to happen. >> i think they're wrong. i think they're wrong. i think a lot of money could be brought out here. this guy will do it. >> on the other side of this break we'll get the opening bell in little more than half an hour. jamie dimon speaking on the hill. "squawk on the street" is coming right back. or pain.

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opening opening bell for a wednesday morning. there's a look at the s&p 500 at the top of your screen in a moment. over at the big board, nyx pride. over at thenasdaq, gentherm. developer of thermal management technologies. one thing we have not discussed. downgrade of mcdonald's over at goldman. >> i'm taking the other side of the trade. where were they at 100? stock is down substantially. second, this company is about to

give you a dividend boost. this will now be one of the higher yielding stocks in the dow. third, when i take a look at disparity, multiple bases over history, it has been right to buy this stock at this time. we also know that they're claiming they like domestic. and this is not a domestic company. >> it's not. we have talked about that before. you have said that you want to be more u.s. centric. mcdonald's gets 35% to 40% of profits from europe. in this sort of environment, maybe mcdonald's is a great company. it may not be a great stock. >> mcdonald's, like starbucks, have come down tremendously off of europe. i think mcdonald's and starbucks are two of the better run companies and they'll deal with it. you're absolutely right. is this as good as owning jack in the box? or verizon? i'm wondering whether this is a headwind or tailwind, this new verizon package for wireless. yes. the answer is i'm going to say to you verizon is better to own. >> goldman sachs, by the way,

saying they still like cmg, chipotle mexican grill. >> they also upgraded hershey. hershey has got a big analyst meeting at the middle of june. june 25th. i have to tell you, hershey, which is only a point from its high, a point from its high forever, it's been one of the single greatest no-brainer names ever since they got new management that said we are going to make chocolate in mexico, not just the united states. >> year to date, what a run. take a look at the chart. >> fabulous stock. cocoa prices down. everything going their way. convenience store sales up. a fantastic company. >> interesting as we are counting down to jamie dimon testifying in front of the senate banking committee. the stock is actually higher right now by just about .1%. outperforming its peers. bank of america down by one and

a third this morning. trading revenues will be down compared to the previous quarter, although still higher year on year. expressing softness on trading revenues. >> didn't make enough of pnc's announcements yesterday that the mortgage putbacks are going to be bigger. fannie and freddie, this election year, if i were the president i'd pick up the phone, call fannie and freddie and say get the money back from these guys who sold us these packaged loans. they've got the money. we need to show we need business. pnc, that was a devastatingly bad -- everyone i know who was there said this was horrible. >> the stock sold off immediately when they presented that at the conference yesterday. but it looks like it, perhaps, is reversing just a touch here on the session so far. >> dell, first ever quarterly dividend will be 8 creents a quarter beginning in the october quarter. it's always interesting when a big tech giant, jim, goes into old school. they go old school into a dividend paying, more stable

names. at least that's the theory. >> this is like intel. and i like intel very much. these are sudden llyiv lly valu dividend plays. we want high growth when it comes to tech. i will give michael dell this credit. this is a way to be able to distinguish himself from other tech stocks saying, look, you're being paid to wait as we get this higher mobile, higher proprietary strategy to work. i like michael dell. i hate that business. >> really not so bad for a first ever dividend on dell. higher by almost 4% on the session. >> it comes in a week where citi says buy cisco. this old school tech debate going on. >> i've got to tell you, as between cloud and big data versus companies that are linked to pcs -- >> and government. >> -- and government. dell is obviously far more than that now. dell has really branched out to do a lot of things. i come back and say the average mutual fund is going to be drawn to cloud plays because the

average mutual fund is addicted to growth. dell doesn't have the kind of growth they want. they don't want dividends. it's the same way that intel was downgraded the other day to a sell by morgan stanley. listen, we don't care about that valuation stuff. we want growth. >> let's check in with david who's found bob pisani here at the new york stock exchange. >> we're talking about a banking union in europe. at least that is certainly one of the key headlines. we haven't talked about europe at all so far in the first 45 minutes of the show. >> the important thing is, are they ever going to make any progress other than throwing money and building up more debt upon debt. two events in the next two weeks. things are starting to come to a head. g-20 meeting is next week. going to be in mexico. president of mexico is hosting it. the big thing that's going to come out, whether or not they're going to raise a lot of money for an imf bailout fund. over $400 million is what they're looking for. can they actually do it? $400 billion is a lot of money. the issue is the u.s. is probably going to sit it out.

you'll get the brazilians, chinese, russians, japanese. maybe the u.s. won't pledge anything. this would be a historic shift that could happen. that's the big news. after that june 28th and 29th an eu summit. i know. another eu summit. who cares? well, this time there is draft proposals for a banking union and real fiscal union that's floating around now that's actually real. they're going to talk about it. they're going to have to come to a point where you're in or out. germans said yesterday if you want checks, they aren't coming unless everybody agrees to surrender national sovereignty. that's the big issue. that's where everybody -- >> that's been the big issue for years now, isn't it? >> now it's going to hit a head. are they willing to do it? i'm rather concerned a lot of these countries when push comes to shove, the actual amount of sovereignty, german's sitting in on budget decisions, germans sitting in on where they're going with their banking system, are going to say uh-huh.

>> we've talked a lot about our own bailout or all the different things we did and how difficult it was in 2007, 2008. we're one country. it's a large hurdle. >> italy's monte is circling the wagons. all the political leaders brought him into one room. the finance minister of germany, think the germans aren't interfere wk came out and said if italy doesn't enact reforms now they're going to be the next victim. austrian finance minister got into trouble yesterday for saying exactly that. today schauble says exactly that. >> spanish 10-year yields down today. bond prices up. a little relief. yesterday our market did okay in the face of rising yields. >> the real problem is the italian political system cannot make a decision. there's too many parties. that's what needs to reform. not just the economic system. the political system needs to

reform. >> we're only days away from a greek election. >> exactly. one of the reasons we've got weakness over in europe right now is the world's largest ball bearing maker, skf, based over in stockholm, denmark, they came out and said their numbers were really weak. europe is weak and china is weak. this is the largest ball bearing maker in the world. skf. that factors into why we're seeing europe so weak today. >> whenever i hear these european names, i always remember when i was -- phillies in the '70s. scorecard, lineup, phillies yearbook. you needed all three to be able to tell the players. i need a euro yearbook. bonds and the dollar. rick santelli at the cme in chicago. >> thanks, jim. you have to pay attention every second. we did see spanish and italian yields somewhat less intense today. but they're turning back up. spain turning back up to 6.75. that affects the entire system.

look at a 1-month chart of our 10s. a 1-month chart of the bunds. rates have turned up a bit from those historic a week ago friday closing yields. 1.40s in the 10. as that spanish rate has moved up today, the high yield in our 10s earlier today was 1.70. we're 1.64. down two basis points on the day. the bund was at 1.53. slipping well under 1.50. that's not where it ends. so many things a bit out of order. the foreign exchange market. remember, when it comes to japan, the imf in recent days has almost kind of baited the japanese or at least acknowledged that should they, should they intervene to weaken their currency, it might help them because, of course, their economy is recessionary bound and they're an export economy. as you look at these long-term charts of the dollar/yen and euro/yen you can see they're historically at very low levels. something probably you want to watch those foreign exchange markets, especially, many say

down here, after the june 17th greek elections. carl, back to you. >> nice pitch. speaking of which, rick, we'll see you in a few weeks when we take the show back to chicago. in the meantime, chatting a little bit, we've talked about some of these -- three of the big dow gainers today are drug stocks, jim. i don't know if it's off of the hopes they get broken up or about jpmorgan's emphasis on the yield for j & j. the highest since 1984. >> i can't emphasize how poorly run j & j has been under weldman who was a much valley hooed ceo who didn't deliver. previous ceo was a great man. what i think can happen again is this company can get back its leadership. the 20, 30 year performance of j & j is extraordinary. the near-term performance is defined by mcneil labs which has been crushed by parago, a consumer products division. a refocused j & j is worth 70

bucks. a split up j & j i think is worth 75. pfizer obviously if you think the world is coming to an end, people go to pfizer. they draw and they always come back to bristol myers. because what does greece have to do with the price to earnings multiple? >> not too much. at least not today. >> no. >> remarkable this call, as you pointed out before. the first time this analyst has recommended j & j in 3 1/2 years. he took it down just as the financial crisis was hitting, was getting to its worst. that's why this call is so watched here on the street at this point. we've actually got the analyst tonight on "fast money" at 5:00. we'll ask him a little bit more behind this call. we're also watching shares of zynga up almost 2% after hitting all-time lows yesterday. data showing daily active users actually decelerated in the latest period. >> past two months. >> today an upgrade. time to step in. a little confusing to me in the

ever corp. note. it's trading in line with peers like activision. later it says it's trading at a premium to its years. we need some clarification on that. anyway, it's higher today. >> yelp, zynga, facebook, groupon, johnson & johnson, bristol myers, merck, pfizer. what do you think? which represent tremendous value? obviously zynga, yelp, facebook. groupon, right? >> the value of the deals in and of themselves. >> i love to look at my groupon deal. it gets better and better versus what j & j offers or merck or pfizer. you try using merck to find out a good restaurant in boston. >> or manicure pedicure place in staten island. >> have you ever played scrabble with pfizer? ever played words with merck? >> drug something?

>> here's the value added. >> coming up, goldman sachs chief economist january hatzius. does he think another round of easing by the fed is necessary or likely. top of the hour, jpmorgan chase ceo jamie dimon testifies on capitol hill about his bank's $2 billion trading loss. dimon's q & a session with lawmakers. on the other side of the break, the results of our cnbc yahoo! finance poll. do you think the u.s. should provide funds to help bail out european countries in financial straits? we want to hear from you. logon. tdd# 1-800-345-2550 the spx is on my radar.

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cnbc forming a strategic alliance with yahoo! finance. cnbc becoming the premiere content provider for the yahoo! finance network. in this morning's cnbc/yahoo! finance poll we are asking do you think the u.s. should provide funds to help bail out european countries in financial straits? 78% of you answered, under no circumstances. 10% said yes. but only if conditions get significantly worse. 7% said, yes, the u.s. needs to step up with funds right now. 6% of you out there are unsure. but 78% is pretty resounding. >> i'm surprised the no circumstances isn't even higher than 78% given some of the political resistance in this country. >> at least they didn't ask how many people are sick of hearing about it. that would be 104%. goldman sachs lowering estimates last week. the firm says the economy slowdown could signal more easing as early as next week.

january hutzian joins us. always a pleasure to have you. good morning. >> nice to meet you. >> you say you don't know how it's going to be but you think it's going to be at the june meeting. >> i think if you take everything together there's likely to be easing. i wouldn't say that's a 99% call. i'd say maybe 75%. maybe a bit more. the form of easing, i think, is complicated because there are a number of things on the table. balance sheet expansion and purchases of treasuries and mortgage lists is our call. it's also possible that they basically decide to extend operation twist and then there are also various options in terms of the communication about future monetary policy moves which also could be an easing move. but that's another factor in the mix. >> he didn't necessarily -- the chairman didn't necessarily telegraph a lot of that in front of the joint economic committee last week. >> the meeting hasn't -- hasn't taken place yet. it's a committee decision. while the chairman, of course,

has disproportionate influence, the discussion still needs to take place and the vote needs to take place. i wouldn't expect him to preannounce something that hasn't been decided yet formally. >> jan, what impact could any sort of easing have at this point? i asked you this. if you use market reaction as a referendum on the effect of any sort of stimulus here, with which round of stimulus from qe-1 to the latest, twist/ltro, the impact on the market has been less and less and less. it's been the law of diminishing returns at this point. in terms of the effectiveness, what would you gauge that at? >> i would certainly agree that we are running into diminishing returns as rates come down across the yield curve. the impact of additional purchases gets smaller. having said that, i'm not sure i totally agree that over the last few easing actions, it's gotten -- gotten worse. i think twist was at least as effective as qe-2, although both

of those were much less effective than qe-1. qe-1 was very effective because you started out from a situation where we were in a great amount of distress. >> is there anything going on in europe to alleviate, say, the property glut? anything talking about actual growth? job formation? i don't see any. >> in europe, i think europe is a headwind in the sense that there is a financial condition spillover into the u.s. so far it's been, you know, it hasn't been dramatic. hasn't been percentage points off of u.s. growth. it's been tenths of a percentage point off of u.s. fwroet. percentage point cumulatively over a couple of years. i think that is another factor arguing for some move by the fed. >> if they do -- if europe does some growth, isn't that more important right now than what bernanke can do? >> it is. for sure. it's definitely more important. the question is what's under your control. and, unfortunately, if you're a u.s. policymaker, you know, you're watching this and you can have advice. but you're ultimately not calling the shots on what

happens on european policy. >> what would change your opinion? in other words, we move into this summer. we deal with europe every day. then we have the looming elections. we talk a lot about a fiscal cliff or at least certainly a slope. what would change your outlook for gdp growth? >> our current out look is basically 2% or so. a little less than that early next year. we think part of the fiscal cliff will result in fiscal tightening. i think the risks to that are probably on the downside. if things are meaningfully away from our forecast, then i think unfortunately they're more likely to be weaker rather than stronger. partly because of the downside risks in europe and partly because just the anticipation of the fiscal cliff, of course, is going to be to some degree a megative. >> people still trying to make sense of the jobs number for may. big debate blossoming about the impact of seasonal adjustments and whether or not we are seeing a pattern of being disappointed in the spring and getting a payback in the fall. you think overall it still works.

>> overall i think there's a need for a seasonal adjustment. and, you know, i think the government in general does a good job seasonally adjusting data. having said that, i think weather was a factor in the strong numbers early in the year and the weaker numbers over the last couple of months. so i think you probably have payback of something like 30,000 or so, maybe a little more, in the may report. and i think x that you're around 100, maybe a little more. >> we'll see what happens next week. thanks for coming by. jan hatziun, goldman sachs. keep an eye on what the dow is doing. currently down 67. big triple digit swings both monday and tuesday. a lot more "squawk on the street" still ahead. up next, jamie dimon isn't the only one in the hot seat today. we'll be grilling jim cramer

momentarily. six stocks in 60 seconds when "squawk on the street" returns.

let's get a live shot at capitol hill where jamie dimon

is expected to walk into the hearing room from the senate banking committee in the next few minutes. we'll keep an eye on that as soon as he walks in. bring that to you live. time for six in 60. six stocks in 60 seconds. we'll kick it off with p & g. >> i have a thing about proctor. not delivering. they should break up. they need gor ski, who is j & j's guy. >> apache. credit suisse says buy it. >> one of the best. nobody cares. >> pier 1. >> i like it. >> juniper. >> people aren't that big on juniper? why? >> petsmart initiated at morgan stanley. >> one of the greatest growth stories of our generation. nobody cares about it unless they have a cat or dog. >> scott's miracle grow not having a good day. >> hideous. hideous. ceo came on my show. he was talking about how mulch was bad. now grass is bad. weather's bad. europe's bad. they're barely in europe. the weather has been great. as a gardener, what's the deal?

is it going to be the actual miracle grow not doing well? >> sots.cnbc.com. what's on "mad money"? >> we have joy global. then harmon. this is very important. harmon reaches out to us. why? because harmon didn't like what was said about the apple deal. harrman's in the apple deal. siri, harman, in other words, bye, bye, bye. >> set the record straight. >> see you tonight, jim. 6:00 and 11:00 eastern time. when we come back, jamie dimon on the hill. don't go away.

here we go, guys. you want to get this. >> here he is. man of the hour. of the morning. we'll see for how much longer. jamie dimon about to take his seat in front of the senate banking committee. his testimony, guys, not that long, really. the question is when the q and a kick off where they take it. tim johnson is the chairman. democrat of south dakota. richard shelby, ranking member, republican from alabama. a lot of big hitters on this committee. demint, corker, schumer, menendez, herb kohl, mark warner and so on. the discussion will lead to the int int intricacies of banking in this particular example and regulation when it comes to the volcker rule and so forth.

>> if you're not an invest in jpmorgan but you were an investor in any bank stock, this will have an impact on what you own because of the potential tightening of the regulatory environment. the tightening of the volcker rule. >> also to the degree in which they're engaged in transactions that they don't understand. remember the testimony we're going to get. they were instructed -- the chief investment officer was instructed in december to reduce the exposure and instead they embarked, according to his testimony, on positions that they thought would offset their existing ones but the complexity rose and they were hard to manage. are they engaged in activities that, frankly, their risk models and their personnel cannot cope with? that goes to derivatives and back to regulation. >> politics will play a role, obviously. jamie dimon is a democrat. of course, one of his lieutenants, bill daley, was once -- >> he likes to point out he's barely hanging on. which is sort of what he puts in front of being a democrat these days. has for quite some time. >> bill daley, chief of staffer

at the white house, of course, once speculated he was going to succeed tim geithner in a previous era. not so much speculation surrounding that these days. >> no stranger to testifying in front of congress. he's done so with his peers in front of the banking industry. he had mr. blankfein with him. mr. pandit. in this case it is a solo effort. that does change the dynamic a bit. >> he has said with regard to the volcker rule that he does agree with parts of it. namely the no proprietary trading part. he has said in the past market making is an essential function of how markets operate in this country. we'll see if he changes that view. >> some have suggested he needs to come out swinging. because this is a point at which if there's too much mea culpa the penalty in greater regulation for the entire sector could be huge. he needs to not be so much -- a new jamie dimon is one that has

so far resisted regulation. >> there's still a school of thought the only people he needs to apologize to are the shareholders of jpmorgan. we'll see how that's reflected today, too. mary thompson is covering this for us down on the hill. she's going to talk to jamie dimon. your thoughts going into this? >> reporter: undoubtedly, carl, jamie dimon is the most respected banking ceo in this country. in his prepared remarks he said the losses that stemmed from the chief investment officer were the result of a poorly vetted and poorly structured trade. more disturbingly, he also said that this trade was done without careful analysis, review or oversight. in his repaired statement he says the cio traders didn't understand the risk they were undertaking, that traders misread early losses on this trade back in january. that risk limits on the trade were too lax. and that cio traders weren't challenged with -- about their actions. all pointing to risk controls that weren't robust. so these points, lawmakers are likely to cling to today when they question mr. dimon.

that's because, of course, his bank is known for its risk management. listen to what senator tim johnson has to say in his opening statement. he asks, how can a bank take on far too much risk if the point of the trade was to reduce risk in the first place? was the goal really to make money? dimon touches on changes made to improve risk controls, changes he claims should reduce and limit the size of future losses on the trade. one, he says, the bank believes to be an isolated incident. he also says the bank should be profitable this quarter. while the total cost of the loss on this trade is yet unknown, we do know the cost to shareholders. so far, $18 billion in market cap lobbed off the company's market capitalization. it's also, of course, cost dimon his sterling reputation. once the industry's lone voice against what many see as excessive regulation, he now runs a bank that many see as a poster for the volcker rule which, of course, seeks to prohibit or limit a bank's pro

p -- proprietary -- this hearing is under way as we speak. shortly after it concludes i will have a one-on-one exclusive with mr. dimon. you'll want to tune into that. back to you guys. >> mary thompson, thanks so much. most people are seated there. sounds like there's an outbreak. >> that happens sometimes. the protesters in the back. occupy -- could be occupy wall street. who knows. >> a number of people. looks like police are moving in. we're moving. >> stop foreclosures now! stop foreclosures now! stop foreclosures now! stop foreclosures now! stop foreclosures now! stop foreclosures now! stop foreclosures now!

>> i'm not sure if it's the same people. i remember when i was covering senator levin's hearing with mr. blankfein. similar. >> andrew ross sorkin is joining us as well in washington. you had to imagine there would be some who were going to use the attention paid today as an opportunity. >> we've already -- we've already seen a little theatrics and a little drama here. the big question, i think, we had senator shelby talk about it earlier. he's going to be grilling jamie dimon in just a bit, it's going to be about what he knew and when he knew it and it's still going to be all about disclosure. the tempest in a teapot. april 13th. what happened between that day and may 10th. and then as you guys have talked about, so frequently, this whole idea of reform and regulation, i think there's going to be a big discussion from what i understand about portfolio hedging which is how this

happened. at least in that group under that direction. and i think you're going to see a lot of talk about ina drew. it's a name that was not mentioned directly in his opening testimony. but it's a human drama story about his relationship with her. his trust in her. she, of course, ran the cio group. what she had done for him for so many years. and how i think he is going to say that he became complacent in all of this. i think that's going to be an issue. people talk about risk coms in systems. you can have only so much of that. ultimately, this is at some level a trust business and he is going to lay some of that blame on her feet. but ultimately at his own. >> protesters, according to a lot of accounts in the room, were saying "stop foreclosures now." apparently he even got an earful from some actually making his way into the hearing room. it will be an illustration, david, of how banking is viewed in this country even still. >> no doubt still a foreclosure crisis ongoing in this country.

a housing crisis, of course. we're still at the lows in terms of the prices for homes. jpmorgan's one of the largest mortgage lenders out there. you know, andrew, as we listen to -- andrew, on market making and the volcker rule, i don't know how much of that is going to come up today in the q & a. that is a key area of consideration, isn't it? where does market making stop and proprietary trading begin? >> reporter: here's what i understand jamie dimon is going to say on that today. i think he is going to max a distinction, a, between market making and portfolio hedging. the market making aspect of working with clients to keep an inventory, i think he's going to try to wall that off as an issue and say that is paramount to the business. on portfolio hedging, which is where this particularly bad trade was made, i think there's going to be some pushback. but maybe not as much as you would expect. it's something he believes is crucial for the firm. but i think he could take it or

leave it at some level, ultimately. his answer to this question of will there be, therefore, less loans. if you can't hedge against these loans, what happens? that's what the portfolio hedging is. the cost might be a little higher. i think that's -- he's going to make a real big distinction because the market making is so crucial to that -- to that business. of course, whether the senators fully understand and grasp all these issues and whether he's actually able to delve into the details, i don't know. by the way, one thing i think investors should look to, you know, he's not going to spell out the size of these trades. but in his prepared testimony, he has suggested that they've gotten their hands around it. given that most analysts are talking about this now being a $4 billion loss, i'd be surprised if come july 13th when we're going to get a lot more detail on this that that number is a lot higher. >> andrew, stick around. we want to bring in our analysts as we await jamie dimon to begin his testimony on the hill.

todd hagerman has a neutral rating on jpmorgan. $50 price target. good to have you on the show. in terms of what we could learn from this hearing, do you anticipate anything that you will learn that will impact your rating or outlook for the stock? >> i don't believe so. again, i think as your colleague mentioned today, really there's going to be a lot of detail in terms of trying to learn more about the chain of command as it relates to the cio office and exactly, you know, how that worked. the process and so forth. i think more importantly, where is the loss today? we're expecting the loss, as you mentioned, to be substantially higher from what jamie reported back in may. again, i don't think there's necessarily going to be any details that would be revealed today that's going to influence my assessment of the stock. >> there's no update, of course, on the size of the loss in the prepared testimony. we know that. what we also know is that the internal review isn't finished. it won't be finished for some time. do you think that's because what

they conclude is dependent in part on what is said today on the desire to square things off in public? >> i really don't. i don't think his testimony today is really a part of, you know, the ongoing investigation and the process. particularly as it relates to the various regulatory bodies that are investigating the trade. i think, again, this will take a number of months until the conclusions are drawn from the regulators. and what he has to say in terms of the depth of the loss, what happened, where the missteps were, where they fell short, it's not going to impact, really, i think whether it's the timing of the rerview or the ultimate outcome of the review. again, it's going to take a fair amount of time until they determine exactly what happened and what the response is going to be. >> todd, we know that he is going to apologize. but how far will the degree of self-punishment go? is there a chance, as jim cramer has been saying, that jamie

dimon give up part of his compensation, for instance? >> well, i think we're likely to hear a variety of topics today that are going to be addressed. certainly, you know, i think compensation is a very real possibility. certainly, you know, his role on the fed's board will also likely come up today. but i think, again, the overarching theme outside of the details of the loss and where it's going to be, it's really going to center on regulation. do we need more regulation. and this serves certainly as a very significant example of how it potentially may affect the global financial services forum and whether we need to call for even further regulation, tighter regulation going forward. >> todd, it's interesting that, i mean, dimon is -- is a well-known banker. but people may not know the role he's played over time. in making banks larger. along with sandy wile, even going to bankone and eventually

creating jpmorgan as we know it today. do you think big banks in general are, in a sense, on trial today? this is not a courtroom. it's not an alleged crime that's happened here. but is it the size of banks that we're really talking about, not just what happened in london? >> you know, i don't think it's so much the size, per se, but it's really -- it goes to the crux of the issue as far as are these companies -- has the complexity of these organizations gone too far outside of what we had in terms of glass-steagall several years ago. and is it really reasonable to think they can effectively manage these risks across a $2 trillion balance sheet. that's really difficult to determine. and, obviously, fuels a lot of debate as to whether or not we should certainly unwind some of these companies. but it's a hotly contested issue. with a fair amount of arguments, fair or not, on both sides of

the equation. >> todd, there are other people that suggest actually if jamie dimon continues to be under pressure and the share price is under pressure, that they may have to look again at unlocking shareholder value. kbw is suggesting they might spin out the retail financial services operation in an independent chase brand. and that could unlock 50% shareholder value. would you think there could be a restructuring of the bank in response to the fact that its market cap is under such pressure? >> i -- i don't believe so, quite frankly. i know it's very easy to make the argument to spin out certain businesses, to shed certain assets and so forth. bring down the size of the balance sheet. again, to suggest spinning out the consumer banking unit, that really doesn't address the problem. the problem with these organizations is post the glass-steagall reform, you've allowed these companies to grow too big as it relates to the capital markets unit. what they can do. the size of the operation. that's the crux of the matter. spinning out a consumer unit,

it's really a debatable event in terms of whether or not there's really shareholder value created. particularly as you think of the universal banking model itself. there's a lot of interconnectiveness, if you will, in terms of how these companies operate and the dependence on each unit. >> todd, we're going to leave it there. thanks for your time. todd hagerman. >> i want to hear from a jpmorgan shareholder as well. michael scanlin owns about 350,000 shares of jpmorgan. good to have you with us. >> thanks for having me. >> even though the optics of all this might seem challenging, we should mention the stock is up. i'm wondering if you think this is an opportunity to buy more or if it's sufficiently hitting with the stock, that is? what's your view? >> from a valuation metric, i mean, clearly the stock has been hit well and above over the $2 billion loss initially announced. it's probably gotten a little worse. there is probably a multiple point discould want you've got

to put on the stock now from a credibility standpoint. when you look at the stock over the next 12 months plus, if the u.s. continues to muddle along the stock should work. everybody had a chance to panic the day that the news hit and shareholders certainly panicked. we have seen the stock hit. but if you can sort of put that in more of a time arbitrage opportunity going forward, this company is going to generate strong returns. >> how worried are you about internal controls? do you think the london office went rogue in the words of cramer this morning? >> i think rogue is a bit much. hedges aren't always 100% effective. that's just a fact. if this hedge had gone, you know, if this hedge had worked and it actually generated income, you know, the stock would have been rewarded as well. i think these activities that go on at banks with you know, you don't always get the best transparency on them because we don't see their trading book. i don't sit across the table as they underwrite every single mortgage. there's a reason why these

stocks always trade at a big discount to the s&p 500 and where they're valued today at a big discount as well. >> i didn't mean to interrupt you. does the stock trade at a premium or at a discount because jamie dimon is its ceo now? >> historically it's traded at a premium. today you've seen that premium kind of evaporate. it's more in line with the group. i think over time as they're able to recover from this, ultimately exit the trade at some point, whenever that may be, i think the stock will regain the premium. they do have a solid business. wramy dimon is certainly a very credible ceo within the industry. >> what do you think will bring investors back to this name? forgetting about the trading loss. you've got europe still in turmoil. you've got our own capital markets, by the way, that aren't doing much in terms of generating feeing either on m and a or equities, a lot of areas. it would seem to me this could be dead money for some time, michael. >> i think when we woke up that morning, the day after the

announcement, the stock sank from the low 40s down to about 38. the rest of this hit from 38 down to where it is today. i think that's more reflective of what's gone on in terms of capital market activity levels. the up tick in threat from europe and decline in interest rates in the u.s. again, when you look at what they have for a business, the returns they're generating, where they stand from a capital substantiate point, the fact you're getting almost a 3.7% dividend yield, the fact that right now the buyback is turned off just in light of this trading area, but the fact they can turn that buyback back on to help us put a floor under the stock as well, it's really tough not to own it here. when you look at where the stock trades on tangible book value, right about where it is this morning, for this stock to trade at tangible book value you have to believe that either, a, assets are worth less than the li liabilities or, b, there's no franchise value. it's hard to get to that conclusion. i think the stock goes up.

i would think in a 12-month period you'd be rewarded for owning the stock. >> michael, thanks very much. michael scanlon, john hancock asset management. andrew, i wonder if anyone's asking you your straight-out opinion. you wrote a book calm ecalled "g to fail." i wonder if you could write a book about jpmorgan with the same htitle. >> i think you could. there's a great human drama in all of this. which as an author and writer you're always looking for. i want to make one point. your last guest talked about franchise value. this is not to dismiss what's happened at jpmorgan. but the franchise value is still there in a way i don't think people have talked about. we talked about the credibility of jamie dimon and the firm

broadly in the stock market among investors. when you go talk to the ceos or clients of the firm -- >> andrew, let me break in. >> i see it there. go for it. >> there's chairman johnson. >> -- to attend his daughter's graduation. but he will be submitting a statement and questions for the record. i want to remind my colleagues that the record will be open for the next seven days for opening statements and any other materials you'd like to submit. now i will introduce our witness. mr. jamie dimon, as a chairman of the board, president and chief executive officer at jpmorgan chase and company. mr. dimon, your full written statement will be included in the hearing record. please begin your testimony. >> chairman johnson, ranking member shelby and members of the committee, i'm appearing today

to discuss recent losses in a portfolio held by jpmorgan chase's chief investment office. these losses have generated considerable attention and while we are still reviewing the facts, i'll explain everything i can to the extent possible. jpmorgan's six lines of business provide a broad array of financial products and services to individuals, small and large businesses, governments and not for profit institutions. these include deposit accounts, loans, credit cards, mortgages, capital markets advice and fundraising, mutual funds and other investments. let me tastart by explaining wh the chief investment office does. like many banks we have more deposits than loans. at quarter end we held approximately $1.1 trillion of deposits and $700 billion in loans. cio along with our treasury unit invests excess cash in a portfolio that includes treasuries, agencies, mortgage-backed securities, high quality securities, corporate

debt and other domestic end overseas assets. it also serves as an important vehicle for managing assets and liabilities of the consolidated entity. in short, the bulk of cio's responsibility is to manage an approximately $350 billion portfolio in a conservative manner. while the cio's primary purpose is to invest excess liabilities and manage long term interest rate and currency exposure, it also maintains a smaller synthetic credit portfolio whose original intent was to protect or hedge the company against a systemic event like the financial crisis or the eurozone situation. so what happened? in december 2011, as part of a firm-wide effort and in anticipation of new bazel cap requirements we instructed cio to reduce risk related assets and associated risk. to achieve this in a synthetic credit portfolio, the cio could have simply reduced its existing

positions. instead, starting in mid-january, it embarked on a complex strategy that entailed adding positions that it believed -- that it did believe would offset the existing ones. this strategy, however, ended up creating a portfolio that was larger and ultimately resulted in even more complex and hard to manage risks. this portfolio morphed into something that rather than protect the firm created new and potentially larger risks. as a result, we've let a lot of people down and we are very sorry for it. let me tell you how it went wrong. these are not excuses. these are reasons. we believe now that a series of events led to the difficulties in the synthetic credit portfolio. these are detailed in my written testimony but i would highlight the following. cio's strategy for reducing the synthetic credit portfolio was poorly conceived and vetted. in hindsight the cio trader didn't have the requisite understanding of the new risk they took. the risk limits for the synthetic credit portfolio should have been specific to that portfolio and much more

granular, i.e. only allowing lower limits of risk on each specific risk being taken. cio particularly the synthetic credit portfolio should have gotten more scrutiny from senior management, i include myself, and the firm-wide risk control. we've already taken a number of important actions to guard against any recurrence. we've appointed entirely new leadership for cio. importantly our team has made real progress in aggressively analyze, managing and reducing risk going forward. while this has not reduced the losses already incurred and tuz not preclude future losses, it does reduce the probability and magnitude of potential future losses. we are also conducting an extensive review of this incident which our board of directors is independently overseeing. when we make mistakes, we take them seriously. and we are often our own toughest critic. 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 make mistakes, we do believe that this was an isolated event. we will not make light of these losses, but they should be put into perspective. 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 event. our fortress balance sheet remains intact. as of quarter end we held 190 billion tlrs of equity and well over $30 billion in loan loss reserves. we maintain extremely strong capital ratios. as of march 31st, 2012, our basel one tier 1 ratio was 10.4%. est maited basel 3 is at 8.2%. both among the highest levels in the banking sector. we expect both these numbers to be higher by the end of the year. all of our lines of business remain profitable and continue to serve consumers and

businesses. and while there are still two weeks left in our second quarter, we expect our quarter to be solidly profitable. in short, our strong capital position and diversified business model did what they were supposed to do. cushion us against an unexpected loss in one area f of our business. while this incident is embarrassing, it should not and will not detract our employees from our main mission, to serve clients, consumers and companies in their communities -- and communities around the globe. during 2011 jpmorgan chase raised capital and provided credit of over $1.8 trillion for consumer and commercial customers. up 18% from the prior year. we also provided more than $17 billion of credit to u.s. small businesses, up 52% over the prior year. over the past three years, in the face of significant economic headwinds, we made the decision not to refrentrench, but to ste as we did with markets in turmoil, one of the only banks willing to lend billions of dollars to the states of

california, new jersey and illinois. all of these activities come with risk. just as we have remained focused on serving our clients, we've also remained focused on managing the risks of our business, particularly given today's considerable global economic and financial volatility. we will learn from this ins tent and my conviction is that we will emerge from this moment a stronger, smarter and better company. i would also like to speak directly for a moment to our 260,000 employees, many of whom are watching this hearing today. i want them all to know how proud i am of jpmorgan chase, the company, and proud of all of what they do every day for their clients and their communities. thank you. i'd welcome any questions you might have. >> thank you, mr. dimon, for your testimony. as we begin questions, i ask the clerk to put five minutes on the clock for each member. mr. dimon, there was clearly

breakdown in risk management at your firm. what did you know when you made your tempest in a teapot comment? why were you willing to be so definitive a month before publicly -- publicly announcing the losses when it appears you did not have a full understanding of the trading strategy? >> let me first say, when i made that statement, i was dead wrong. i had called. i'd been on the road. i had called ina drew who ran i cio. i had spoken to our risk officers. i was assured by them, and i have the right to rely on them, that they thought this was an isolated, small issue and that it wasn't a big problem. they look at things like how bad can it get. they stress it. under no event did it look like it would get nearly as bad as it

got after april 13th. >> mr. dimon, there were reports that the cio had scrapped a risk limit that would have required traders to exit positions if losses exceeded $20 million. is this true? if yes, did you prove this? and why was the limit removed? >> there was no loss limit that i know of of $20 million. >> $20 million. >> oh, million. i'm not aware of a $20 million loss limit. cio had its own limits around credit, risk and exposure. at one point in march some of those limits were triggered. the cio at that point did ask the trade rs to reduce taking risk. she started to look very heavily into the area.

which is proper to do. sometimes limits do get hit. people focus on it, think about it and decide what to do about it. >> there have been concerns raised about the change made in the cio's risk model. when were regulators notified? why was the risk model changed? did this risk -- did this change mask the true risks of the trading activity? >> so what i am aware of is that sometime in 2011, the cio had asked to update their models partially to get them updated to be compliant with the new basel rules. they started the process six months earlier. in january they did, in fact, put in a new model. i should note that models are changed all the time. always being adjusted. try to be better. inform yourself with the past

and try to make models get better. the models run were improved by the model review group, implemented in january and tid effectively increase the amount of risk the unit was able to take. on april 13th, we were still unaware that the model might have contributed to the problem. so when we found out later on, we went back to the old model. so the old model was more accurate in hindsight than the new model -- than we thought it was going to be. >> reports suggest there are multiple warnings of weak controls at the cio that were ignored. and your trust money states that your trading strategy was not reviewed outside cio. did you, mr. dimon, make the decision to exempt the cio from any review of risk controls outside of the unit? why was no one watching?

>> i think the first error we made was that the cio unit had done so well for so long that i think there was a little bit of complacency about what was taking place there and maybe overconfidence. it did have its own risk committee. that risk committee was supposed to properly overview and vet all the risks. i think that risk committee itself while independent wasn't independent minded enough and should have challenged more frequently, more rigorously this particular synthetic credit portfolio. i think the second related r ed is that the sin thet you cic cr portfolio should have had higher scrutiny. >> did the pay structure for the employees at the cio incentivize risky behavior that led to the massive trading loss instead of rewarding those who reduced the bank's risks?

were there bonuses for generating profits out of the cio? will you seek clawbacks from traders, management and executives involved in this trading debacle? >> i think -- big picture about compensation at jpmorgan. to start with, we don't -- have not had for five or six years special severance packages for executives, change of control, parachutes. no one on cio was paid on a formula. the management of the cio portfolio was subordinate to the rest of the company. they couldn't take too much high yield exposure, et cetera. they were paid for what they did for the whole company. when we pay someone, we look at everyone. their performance includes recruiting, training, integrity, sharing with senior management, all the things we need to do to make it a better company.

so i don't believe that the compensation made this problem worse. but -- and, like i said, none of these folks were paid on formula. your second question was clawbacks. when the board finishes the review, which i think is the appropriate time to actually make those final decisions, i think it would be inappropriate to make those decisions before you finish your final review, you can expect we will take proper corrective action. i would say it's likely, though this is subject to board, it's likely there'll be clawbacks. >> senator shelby? >> thank you, mr. chairman. mr. dimon, so that we would have some idea of what happened, could you explain a little further what really happened without divulging your proprietary interests? we don't want you to do this. could you tell us a little more? in other words, you were managing risk. what were you managing? >> the biggest part of --

remember, the biggest risk we take is credit. it's loans. $700 billion in loans. the excess deposits, we have a $350 billion portfolio. that's the biggest part of cio. average reign is aa plus. conservatively managed. unrealized profit of $7 billion. in addition, i should also point out in terms of risk management we also have $150 billion in cash today pretty much invested in central banks around the world. we try to be a very conservative company. >> we understand that. on this particular occasion that brought these losses on, explain to us without getting into your proprietary area what you were doing and what went wrong. we don't really know yet. >> the synthetic credit portfolio originally had been designed -- >> by synthetic credit portfolio, what do you mean? >> index swaps, derivatives, credit related. they're traded. some ktively traded in the markets. >> you took a position in them, right? >> we took a position in them. if you look at the position what

it was meant to do was to earn in benign environments, maybe make a little money. if there was a crisis like lehman, eurozone, it would reduce risk dramatically by making money. that was the original intent of the portfolio. in fact, during '08 and '09 it did actually accomplish those objectives. >> were you investing or were you hedging? or was it a combination of both. >> i would call this hedging at that point in time. this was hedging the risk of the company. it would protect the company in the event things got really bad. and they did get really bad at one point. it did have some of that protection. >> credit went bad? >> yes. if credit went really bad, this would do better. this would do well. that was the original intent. in january, february and march we'd asked them to reduce this risk. you can reduce shorts by going long or just by selling the positions you have. they actually created a far larger portfolio. it had far more risks in it. they were far more complex risks. on april 13th we were not aware of that. but soon after we were, we made

a public announcement. because we thought we owed our shareholders that. since then we've been managing, analyzing and reducing that risk. >> to detail what really happened, here we're talking in general terms now, would you feel better in a closed hearing? or would you not like to divulge things because you still have a position, proprietary interest in them. >> i think i would prefer not to divulge things. we told our shareholders on july 13 we intend to make far more disclosures about what happened and specific disclosures about this portfolio, what happened to this portfolio and what we've done to reduce the risk in the portfolio. >> i guess the question comes up, is this hedging or proprietary trading? according to some press reports, there's disagreement about whether the chief investment office, which executed these trades, was supposed to be hedging risk or earning a profit.

it's been reported that this office contributed more than $4 billion of net income in three years, which is about 10% of your overall profit. what was your expectation for this unit, the cio unit? was it supposed to hedge? supposed to earn profit? or some of both. >> the whole cio unit invests money and earns income. like i said, that's invested, of course, a broad array of diversified investigatiy eied i. it's used to pay deposits at branches, pay our people. yes, it's supposed to earn revenue. this particular synthetic credit portfolio was intended to earn a lot of revenue if there was a crisis. i considered that a hedge. it was protecting the downside risk of the company. in fact, the biggest risk of the company. the biggest risk, there are two major risks that jpmorgan faces. dramatically rise interest rates and a global type of credit crisis. those are the two biggest risks we face. so the hedge was intended to improve our safety and

soundness, not to make it worse. >> was what went wrong, was it the way the -- the hedge was contrived? or was it events beyond your control? >> i think it was -- the way it was contrived between january, february and march, it changed into something i cannot publicly defend. >> lessons learned. what have you as the ceo of jpmorgan, which is our largest bank, what have you learned from this problem, this debacle? >> i think that no matter how good you are, how competent people are, never, ever get complacent in risk. challenge everything. make sure people on risk committees are always asking questions, sharing information. and that you have very, very granular limit when taking risks. it says you can take no more x risk in y. including things like liquidity

risks so that you're controlled. in the rest of the company we have those disciplines in place. we didn't have it here. that's what caused the problem. >> thank you, mr. chairman. >> senator schumer. >> thank you. good morning and thank you for coming. my first question is about risk committees. i was a proponent in the dodd/frank of increasing corporate governance and fought to have included in dodd/frank a provision 165-h requiring all banks with over $10 billion in assets and all nonfinancial -- nonbank financial firms supervise -- have a separate risk committee on the board that includes, quote, at least one risk management expert having experience in identifying, assessing and managing risk exposures of large, complex firms, unquote. as you know some questions have been raised about the oversight provided by your risk. you already had one. obviously you didn't need the legislation to do it. what went wrong with the risk

committee? what can you suggest to the regulators as they formulate rules about risk committees? why didn't it do its job? why at no time they fididn't ths the one place -- >> i think it's a little unrealistic to expect the risk committee to capture something like this. they spend an awful lot of time. i would point out, this risk committee took this company through the most difficult financial crisis of all time with flying colors. the risk committee tdid a great job. this is a flaw i completely blame on management. certainly not on the risk committee. recently we have two new directors that also have extensive experience in financial markets. >> okay. so you feel the risk committee, this was too -- too small -- too small an item for them? give me a little more context

for this. >> the risk committee reviews a lot of issues, regulations, requirements. they meet a lot of management. they talk to risk committees. they make sure there's government in place. it would have been hard for them to capture it if management at no time capture it. to the extent we were misinformed, we were misinforming them. >> second question goes to the broader context. i think what brigfrightens most people about what happened, not the effect on jpmorgan as you said. it's a large institution, well capitalized. and the shareholders lost but the taxpayers and customers didn't. the question that bothers most people is what's to stop this from happening again, maybe being a larger loss of the same type, but particularly at a weaker or less well capitalized institution. it was institutions smaller than jpmorgan that caused -- that started the catapult in the financial system. firms like lehman brothers.

were we just lucky we found out about this one when we did? what is your assessment as somebody who knows the financial industry about the danger of this type of thing happening in other institutions that are not as well capitalized as jpmorgan and the effect on our financial system? >> so we did -- we weren't just lucky to catch it. we did have limits in place that captured it. they should have been much smaller in this particular activity. one of the things that regulators can and do do is disseminate and promulgate best practices everywhere. i do think that since the crisis, and you should have comfort in this, banks are better capitalized. they have more liquidity. there's more transparency. boards are more engaged. risk committees are more engaged. of course, companies across america sf america. >> what about nonbanking institutions that do this, that don't have the same requirements but are engaged in similar activities that could cause problems for the system? >> i think the regulators are

currently deciding which of the nonbanks are going to be part of systemic risk oversight. i'll leave that to them at this point in time. >> okay. final point. the chairman asked this. but it's about clawbacks. i was glad to hear that there is a clawback policy. it seems to me that that's an appropriate thing to do when people make tens of millions of dollars for taking risks. and they do it poorly. if there's a clawback, it may be a good internal incentive to be a little more careful, if you will. not just to have an upside, but to have a downside in their own personal compensation. can you tell us a little bit about the policy that you have for clawbacks? i know you don't want to talk about individual cases because the investigation isn't done. tell us how it works, how widespread it is, how mandatory it is, that kind of thing. >> the -- there's several layers. for senior people, which most of these people are, we can clawback for things like bad judgment.

clawback any uninvested stock. even clawback things like cash bonuses. so it's pretty extensive, the ability to claw back. i was in favor of the clawback system. i think one of the legitimate complaints was that after the crisis, a lot of people walked away from companies that went bankrupt with a lot of money. some of that was inappropriate. in this particular case, the board will review at the end of this every single person involved, what they did, what they didn't do and what's appropriate. a lot of people had been at the company and very successful for a long period of time. >> is there a limit to how much the clawback is or anything else in your policy or it's discretionary? second and final question, has it been used thus far in your bank over the years you've had the policy. >> the new policy has not been used thus far. >> are there limits? >> there are limits to essentially what you've been paid the last -- it's somewhat limited to what you've been paid over the last two years. >> thank you, mr. chairman. >> senator crapo. >> thank you, mr. chairman and mr. dimon.

last weekend the testimony -- >> we're going to take a quick break. we'll rejoin the hearings and the q and a portion on the other side. stay tuned.

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yay jamie dimon's testimony on the hill continues. being asked in this case about the volcker rule. >> could you discuss for a moment whether we can distinguish between proprietary trading and hedging and, if so, how we make that distinction? >> i think it's going to be very hard to make a bright line distinction between proprietary trading and hedging. because you can look at almost anything we to and call it one or the other. every loan we make is proprietary. if we lose money, the firm loses money. if we buy treasury bonds and they lose money, we lose money. i have a hard time distinguishing. i do understand the intent of the volcker rule. if the intent is to reduce activity that's going to jeopardyize and threaten a big

financial company, i completely understand that. the devil is going to be in the detail in how these rules are written that allow the good of our capital markets and not the bad. i'd be happy to talk more about our capital markets. >> tell me for a minute how you would describe that. what is a proper hedge in the context of the volcker rule distinction that we're trying to make? >> portfolio hedging which i think should be allowed is something that would protect the company in bad outcomes. and you can analyze that. it doesn't mean you're always going to be exactly right. but you can analyze that. i do believe you should be allowed to do portfolio hedging. there are ways and methods and analytics to make sure you think it protects the company in a bad outcome. >> that would be something like going short in the -- >> going short credit if you think there might be a credit crisis would be one way of doing that, yes. >> thank you very much. >> you're welcome. >> senator reid. >> thank you very much, mr. chairman. i think this is a very important hearing because the issues that have been raised go right to the

capability of large, complex international financial institutions to manage risk. and complementing that is the ability of regulators to oversight the management of the risk by those corporations. i think it also is a strong case in my view for a very clear, but very strong volcker rule. and also for standing up finally to director at the office of financial research. i know i've been talking to chairman johnson and also ranking member shelby about that. but let me ask a question. this goes to risk management. in your proxy materials, risk management seems to be the responsibility of the office of risk management. which is an individual different than the cio. was this individual -- and i know there was several changes -- monitoring and supervising the cio, the chief investment officer, on a regular

basis? did he or she approve the change in modeling for the var? >> every business we have has a risk committee. those risk risk committees, red of risks of those businesses report to the head of the company. there's periodic conversations between head of risk of the company and senior operating group about the major exposure we're taking. obviously that chain of command didn't work in this case either because we missed a bunch of these things. you can blame it on anyone in the chain if we had been paying a little more attention to why more limits here, we could actually have caught this and stopped it at this point. there's an independent model review group that looks at changes in models. we do change in models all the time. models constantly changed for new facts. i caution you models are backward looking. the future isn't the past. they never are totally accurate

capturing changes in businesses, concentration, liquidity or geo politics or things like that. so we're constantly improving them. also we don't run the business of models. models are one input. you should be looking at lots of other things to make sure you're managing your risk properly. >> did you share with or the occ inquire about the change in the modeling? for the record, this change was just in the in the office of investment. >> there was a change in investment in january, a new model put in place. we took it out and put the old model in. >> why did you change the model firm why? >> the firm has hundreds of models. this was specific to that synthetic portfolio. >> let me get back to the question of occ. were you aware of the change? did you bring it to their attention? >> i don't know. we tell the regulators what they want to know. they often look at models.

some models they do in extensive detail. i don't know specifically in this one. >> according to the proxy, the chief investment officer's response to measuring, monitoring, reporting managing firm's liquidity, interest rate, exchange risk and other structural risk which basically essentially at least the indication is their job is risk management not generating profits by investing deposits. it seems that their model, their var model was loosened up considerably giving them the opportunity to engage in more risky activities. is that your conclusion looking back? >> half. in january the new model is put in place to allow them to take more risks and it contributed to what happened. we don't as of today believe it is done for nefarious purposes. we believe it was done properly by the independent model review group. there may be flaws in how it was implemented.

as we realized the model didn't accurately reflect reality, we went back to the old model. >> let me ask, it appears from looking at published reports that essentially these credit default swaps were first made to protect your loans outstanding, particularly in europe. that was in the 2007-2008 time period, which is a classic hedging. you have extended credits to corporations. those credits go bad, you want to be able on the other side to ensure yourself against that. but then in 2011 or '12, at some point the bet was switched and now you started rather than protecting your credit exposures taking the other side and selling credit protection, which seems to me to be a bet on the direction of the market unrelated to your actual sort of credit exposure in europe, which looks a lot like proprietary trading designed to generate as

much profit as you could generate, which seems to be consistent this is a risk operation and you're hedging a portfolio. how can you be on both sides of the transaction and claim you're hedging? >> i think i've been clear. the original intent was good, what it morphed into i'm not going to try to defend. under any name i will not defend it, it violated common sense in my opinion. i do believe the people doing it thought they were maintaining a sure against high-yield credit that would benefit the company in crisis, and we now know they were wrong. >> that leaves us in a situation how do we build in rules and regulations that prevent, as you would say, well intentioned, extremely bright people from doing things that are very detrimental? first of all, you've lost several billions of dollars, which this activity was located

in the bank. frankly it was deposits that were insured by the federal government. second, you've lost a significant amount of your market value to your shareholde shareholders. the irony to me, if there was a good volcker rule in place they may not be able to do that because it does not seem to be hedging exposure risk for the overall banking portfolio. >> i don't know what the volcker rule is. it hasn't been written yet. it's very complicated. it may stop parts of what this portfolio morphed into. >> there's a possibility, if it's done correctly as proposed, and i hope it is, that it could have avoided this situation? >> it's possible, i just don't know. >> thank you very much. >> senator. >> thank you, mr. chairman, for having the hearing and mr. dimon for being here. i wish we had these hearings

prior to the passage of financial regulation. i think one of the good things that have come out of this, a lot of folks on the committee have focused in on issues that are relevant. again, i think that part of this has been positive. mr. dimon, you mention the biggest risk a bank takes is making loans. is that correct? >> yes. >> that's the largest -- you have $700 billion in loans, is that correct? >> yes. >> what would happen in an institution like yours, you had $700 billion in loans, the riskiest business do you. what would happen if you didn't have the ability to hedge that risk in ways that make sense, not the way you did it? >> i think there are two things. one is smaller. you might reduce the amount of risk you're taking. >> less loans? >> you might make less loans just under the circumstance that if things got bad, you could still handle it. that might change the price of loans of the marketplace if all banks did that. i think more than that you wouldn't be able to protect the company from the systemic event. we want to be able to protect

jpmorgan from systemic events. we know they happen. to me, i want to survive good times and bad tiles. jpmorgan's balance sheet and capital allowed us to do good thins and bad for clients. if we couldn't protect ourselves, i think we'd have a hard time serving our clients. >> i think you've made it clear, and i know numbers of people in the last hearing were talking to regulators about why they couldn't catch something like -- there's really no way for a regulator to catch this type of activity. would you agree? >> it would be hard to do. regulations of continuous improvement. always get better, clarity, cleaner. it's hard to have the unrealistic expectation you capture things like this. try to set up rules to capture this. >> a banker is always going to be ahead of a regulator basically. you're giving them the information you're using regulates so it's not really realistic to think a regulator is going to catch this. so a lot of people think -- as a matter of fact, one of your

peers at one of the large, large institutions was in yesterday was talking about the fact dodd/frank really missed the mark. we had this huge amount of regulations taking place at the institutions. what we should have done is look at regulating the markets themselves. much of what happens in the markets takes place outside of the regulated entities. let me ask this question, has dodd/frank more than marginally made the banking system safer. >> we supported some elements. >> i know what you supported. has it made our financial system safer? >> i think parts of it in conjunction with higher financial liquidity the financial system is safer today than it was in '07. >> i'm talking about -- i understand we have larger capital, banks and boards causing that. i'm talking about regulatory regime congress put in place. has it made our system safer?

>> i don't know. >> okay. one of your peers, not quite as well-known as you, but believes not. as i look back, we looked at the 20 largest institutions in the wor world. since the 1990s japanese meltdown, 16 have had taxpayer money injected into them. so you look at what we've done. many people obviously are coming out with all kinds of models, haney, bear glass eagle is being talked about. would you share with the committee the purpose of a highly complex institution, what societal good an institution like yours is and what our financial system would be like if we did not have these highly complex institutions. and secondly, you're obviously

renowned, rightly so, i think, as being one of the most -- one of the best ceos in the country for financial institutions. you missed this. it's a blip on the radar screen. are these institutions today too complex to manage, the fact that 16 of the 20 have had injections. what does that say about a highly complex institution like yours. >> we have an unusually complex ecosystem from small companies to large companies, there's 27 million businesses. 1,000 of the top business employs 30 million, the rest of the private sector ploy 26 million companies or so. a place for large companies and small companies. for people like us, we bank some of the largest global multi-nationals in america and around the world. companies in 40 different companies. we do trade finance. intraday finance lines of billions of dollars to some of the biggest companies.

$5 billion revolvers or raise money for america's fortune 100 countries in a day or two when they need to do something. we are the largest banker to banks. we extend something like $23 billion of credit to smaller banks. they need some of that. there is a great role for community banks. we can't do everything community banks can do in a community. you need all those things. there are some negatives to size. size brings scales, diversification. our diversification was a source of strength in the crisis. it was not a source of weakness. it allows you to invest huge sums of money in data centers, cyber security, things you want to do. some negative side, greed, hu r hubr hubris, lack of attention to detail. if you do a good job there's a guide side of big business. if we weren't doing these for

american businesses, someone else would. that's all. these are services they need. they don't buy them because we want them. we provide huge credit lines to them. >> my last question. you believe a highly complex institution is necessary. if you weren't doing what you're doing, other people if the world some other mass would be. you also are unsure whether dodd/frank has made our system any safer especially at the top level. we're here quizzing you. if you were sitting on this side of the dais what would you do to make it safer in the global economy we have. >> the biggest disappointment i have we never actually sat down, republicans, democrats, businesses and had really detailed conversation about what went wrong, what needs to be fixed, to focus on what actually needs to be fixed. we still haven't fixed the

mortgage markets, which is critical for the united states of america. we still haven't fixed some of the other credit mark. markets fixed a lot of things, no subcrimes, no vehicles. we could have a great financial system. the american business machine is the best in the world. it is the best in the world. we are blessed to have it. we should focus on getting it working again instead of constantly shooting at each other all the time. >> i hope we do that. mr. chairman, thank you for calling the hearing and thank you for being here. >> senator. >> thank you, mr. chairman. i listen to this and i paraphrase shakespeare, a hedge or not a hedge, that's the real question. it seems to me that you call these trades that lost anywhere from 2 and $4 billion economic hedges, a tempest in a teapot, which i now understand you regret and went on to say that

it morphed. but really a hedge, as i understand it, doesn't create a loss without a corresponding gain. that's why you're hedging. it seems to me what happened here you were pursuing a loan portfolio selling in essence a toxic instrument which caused a big part of the challenges in 2008, the crisis of 2008. so really, you know, when you reduce a hedge or hedge a hedge, isn't that really gambling? >> i don't believe so, no. >> so this transaction that you said morphed, what did it morph into, russian roulette. >> it morphed into something i capital adjujustify. it was too risky. >> too risky for your company, one of the nation's largest,

well financed bank. if it's too risky for your company, what stops it in the future for being too risky where you lose not 2 to $4 billion but $50 billion, create a size that ultimately creates a risk on the bank that takes that bank into the possibility of a run and ultimately becomes the collective responsibility of each and every american. that's what we're trying to prevent here. so i've heard you talk about the balance sheet. i'm glad to hear you say to senator schumer we should take comfort banks are more collateralized. in saying so, one way to think about this is i wonder what your views -- do you regret calling the efforts to require banks to hold more money, quote, un-american, and, quote, putting the nail in our coffin? today you site the fortress

balance sheet of your bank as a way to prevent against the challenges, yet you raled against us when we were trying to pursue greater capitalization of the bank. is that common sense? >> no, what you said is true. i supported parts of regulation reform, higher capital, liquidity, supported an oversight community, standardized derivatives to clearing houses, we supported proper transparency. we supported a lot of the things you requested. we did not fight everything. when i mentioned the anti-american thing, i was talking about between dodd/frank and bossel, things skewed against american banks. the american banks can't with v preferred stock like foreign banks can have, can't do qualified mortgages -- >> did you not specifically say as part of your un-american comment that the requirement for banks to hold more money was un-american? >> i did not.

>> well, you know, i'd be happy to look at that again. i think you might want to review that. what you rit sized again and what your bank has been lobbying extensively against is the very types of protections that at the end of the day can guarantee that the american taxpayer doesn't become responsible. i think about the fortress balance sheet you talk about. i'd like to remind it it has a moot dug by taxpayers, $450 billion in loans from the fed. it seems to me that the american people are a big part of helping to make your bank healthy. one thing they would seek in return is to ensure you're not working against the very essence

of what are legitimate efforts to control the risk so that you can prosper, and your shareholders can prosper, but at the same time it doesn't become the collective risk of the taxpayers of this country. do you not think that's a fair ask of the american people? >> i want a strong financial system like you do. we have support add lot. there's thousands of rules and regulations. we're not fighting them all. giving informed advice. some that don't make sense. we think we're entitled to the ones to tell you that don't make sense. >> i think you're entitled to tell the ones that don't make sense. i also think the american people after making major investments in your bank and other institutions are sbilentitled t ensure they don't have to reach into their pocket again. >> senator demint. >> thank you, mr. dimon. i appreciate you coming in to

talk to us. it is important to talk about things happening in the industry. it advises us, helps us as we look forward and hopefully contribute to best practice scenario in the industry. i appreciate your emphasis on continuous quality improvement. we can hardly sit in judgment of your losing $2 billion, we lose twice that every day in washington and plan to continue to do that every day. it's comforting to know with a $2 billion loss in a trade last year, your company still had a $19 billion profit. during that same period we lost over a trillion dollars. so if we had a callback provision, none of us would be getting paid here. the intent today is really not to sit in judgment but maybe to understand better what happen happened -- my concern and some

of the questions have been helpful. as you can tell there's a temptation any time something goes amiss we want to add a regulation. we've surrounded the banking industry with so many regulations and we still seem to have problems here and there. i think we do need to recognize you are a very big bank, the biggest in the world. you've got very big profits. periodically you'll have big losses. we need to look at that as part of doing business but also in the context of making sure, as the senator just said, we don't create additional risks for the taxpayer, which you appear to be in much better fiscal shape than we are as a country. we know risk is required to make a profit. you're dealing with a lot of capital you have to put to work, which certainly is going to experience profits and losses and generally you've done pretty well. i do want to follow up on senator corker asking about the

dodd/frank regulation, which a lot of us are concerned about. i think a lot of us are frustrated bank managers and want to manage your business for you. as i've mentioned, we're not capable of doing that for what we've been given to manage. i would like to come away from the hearing today with some ideas on what you think we needed to, what we may need to take apart what we've already done to allow the industry to operate better and at the same time not put the american taxpayer at risk. i'm really honestly looking for some ideas as we look over the next year and hopefully in a position where we can make some positive changes. >> the only real suggestion i have, i believe in strong regulation, not always more. not more or less is good. what we set up a system with more and more regulators, we don't know who has jurisdiction

over the issues we're dealing with anymore. dealing with four or five different regulators. i would prefer a simple, clean, strong regulatory system with intelligent design. that's not what we did. we created a hard, complex, no one can adjudicate between the regulatory agencies. it's not clear to me who has the responsibility or the authority. >> in a lot of industries i've worked in, they get together as peer groups to evaluate best practices, share information with each other. is that something that you regularly do with your peers, other banks around the world of how you deal with risk and how these committees should work, what the failures are. is that going on in a way -- >> we used to do a lot more. constantly with regulators feedback and rules, send them a lot of analysis and detail, stuff like that. there's less collaboration among banks and among regulators than

there used to be. it's become much more adversarial. >> obviously as we've seen, the laws and regulations are not necessarily improving things. some of the things you've done voluntarily in other banks, capital requirements, i think a best practice if we could do anything to encourage the industry to develop a lot of its own voluntary rules, that would guide us a lot better. so i guess if i could just leave you with any one thing, if you could come back this time next year and talk about how the industry has put together a large scale best practice committees that would help us keep banking as a private enterprise rather than as a government institution. so thank you. thank you. >> senator brown. >> thank you, mr. chairman. thank you, mr. dimon for being here today. you have some 19,000 employees

in the columbus area who are also my constituents. i don't want them to lose their jobs because cowboys in london make risky bets. i want a series of brief questions. i have five minutes as others and if you could possibly give a yes or not when appropriate or short answer, i would appreciate that. to start with, and the chairman touched on this earlier, if you could just give a yes or no. did you personally approve of the chief investment officer's trading strategy? >> no. i was aware of it, but i did not approve it. >> did you personally monitor the chief investment officer -- office? >> in general, yes. >> okay. thank you. >> last week i asked in a series of questions of the occ about oversight and lack of oversight about this question.

i finally got their answer this morning. their response was okay but a bit inadequate. they say they have five examiners in london who essentially divide part of their time examining your operations. the portfolio of assets in question is reportedly about $200 million, which is bigger than the vast majority of banks in the united states as you know. april 1 told investors the trades in question were fully transparent to the regulators as part of our normalized reporting. the occ letter says the occ examiners were unaware of the level of risk occurring at your investment office until april. here is my series of questions. was the occ told about the trades taking place in your cio office prior to the april 6 media reports? >> we are -- we try to be very open regulators, give them reports. they do get some reports. we give them what they want. we give them the information

they want. in this particular case, since we were misinformed, they were misinformed. the mistake we made we passed onto them. the second we found out, we got on the phone with our regulators. we have a problem we want to describe with you and they were deeply involved since then. >> thank you for that answer. april 13th earnings call were they told about the trades prior to the earnings call with occ? >> i don't know. like i said, they get some of our reports. as we were misinformed, we probably misinformed them. i think what's important, once we found out, the first people we call were the board and regulators and probably not even in that order. >> the issue is partly your side, partly the occ's side. do you know if occ inquired about trades as the regulators, these five regulators or maybe regulators back in new york, did they inquire about the trades prior to the earnings call?

>> i don't know. >> you don't know the answer to that. at what step did occ take steps to challenge the trades? >> i think the second they understood the significance of the trades, they started to challenge it every day and they continued to. >> is five regulators in london enough? >> i don't know the answer. i would say in this modern day and age they get all the reports from london, all the reports. they can do it by telepresence. physical location isn't important. i should point out by the way the 19,000 employees in columbus serve global clients. they serve 30 million americans, largest middle market lenders, middle market companies. they innovate, run call centers there. they process credit cards which we ship around the country. those employees are not just doing ohio-based business. >> i understand that. i certainly appreciate that.

>> couple of questions. since 2007 grown to $170 billion. orc says, quote, your activities weren't historically considered high risk but go on to say a similar level of activity or situation, large hedges i will liquid and otherwise complex not present at other large banks. other banks don't create activities with synthetic derivatives to the extent size or complexity jpmc has in this question. my question is should occ been more focused on trades of synthetic derivatives they admit now in hindsight were larger and more complex than any banking system. >> we should have. i would be very happy with that. >> if your bank didn't have $2.3 trillion in assets would your ceo need that $370 billion. >> most of that represents deposits. a lot of that increase was because we bought wamu. when we bought wamu, we had a

lot more cash in the door. i zoom you want us to buy wamu. what we're doing now, we have a thousand small bankers in the state wamu was, california, florida, investing the assets and conservatively other than this one thing is what we do. >> senator corker made a statement while ago or offered the assessment question or observation, i'm not sure exactly where he was going, just raised the possibility that this may be too -- jpmorgan chase may be too complex to manage, which also begs the question is it too complex and large to regulate. i want to lay out a couple and then finish, mr. chairman. jpmorgan chase in 30 years quadrupled in size from $367 billion in assets, in 199 to $2.3 trillion. today six banks $800 billion and above. over the last five years alone you've grown by $400 billion apart from what you just cited.

a practical matter neither you or occ could monitor what happened in a $370 billion chief investment office that would, if it were standing alone, be the eighth largest bank in the united states. we have a $2.3 trillion bank, 559 subsidiaries, 37 countries, executives and regulators, it appears from listening to you and your comments from watching what happened, talking to regulators and seeing occ response, it appears executives and regulators can't understand why what is happening in all these offices at once. it demonstrates to me too big to fail banks are frankly too big to manage and too big to regulate. chairman, i yield back. thanks. >> senator. >> thank you, mr. chairman. >> mr. dimon, let me start out and say thank you for being here today. i have listened to the various

questions about the trade. i think to summarize everything you've acknowledged definitely was a dumb move. the loss is unfortunate. you've apologized for that you've kind of walked us all through that. so what i want to do is ask you about some things maybe at a 25, 30,000 foot level, if i could. starting out, how many regulators do you have on site in your organization from some federalentity? >> i believe there are hundreds. >> hundreds. >> multiple regulators. >> right. when something like this pops up, are the channels clear anymore as to who you deal with and who is regulating what and who you need to be paying attention to? how do you deal with that? >> we -- look, we're always

going to treat the regulators the way they deserve to be treated. whatever the system is, we have to deal with it. we have people assigned specifically to deal with regulators. the fdic, occ, fed, pcb, we deal with all of them. on this particular issue, the first three are all engaged, occ, fed, fdic. >> how much have regulatory costs increased as a result of dodd/frank, volcker rule, whatever it is? >> i've estimated, i call it a rough estimate, probably about a billion dollars a year and across systems, technology, risk, credit, compliance. it cuts across every -- 8,000 programs we run. we have to accommodate resumes. rules brussels, uk, et cetera. we're going to do all those things, meet all the requirements but it will be a little costly. >> one of the things that i have

maintained in many hearings since we examined dodd/frank before and after its passage, there's just a point at which it's economically better business to do business elsewhere than the united states. do we run that risk with dodd/frank that literally we have made life so complicated, so hard to navigate through, that you have enterprises who decide, look, i'll just go to singapore, wherever, to do business. >> we're going to be fine ourselves. we'll be able to navigate all that. i talk to a lot of business people and do hear a lot of people saying it's easier to be overseas. several companies have moved overseas recently. >> my concern doesn't stop there. what i saw about dodd/frank we started out with a lot of purpose. let's try to figure out what

happened in '07, '08 and how do we fix it. then all of a sudden farmers co-ops were showing up in my office and saying what are you doing? i'm thinking, what did a farmers co-op have anything to do with what happened in '07, '08. i haven't verified this, somebody just told me this last night. maybe you're aware of it but somebody who worked with this banking committee mentioned last night at an event i was at there had not been a single bank charter in the united states, and it had been 78 years since that had happened. do you have any information on that? >> i was unaware of that. >> mr. dimon, it further occurs to me that an enterprise as big and as powerful as yours, you've got a lot of firepower. you're just huge. we'll find a way to navigate

what has happened here. what i worry about, you're not located in my state, and i doubt you're probably considering locating in my state, although it would be a great place for you to do business. >> we may be there one day. >> what i suspect is happening is our medium to small banks are now trying to navigate through this very complex legislation. these are banks where maybe they employ a dozen people or two dozen people, and they are just going to give up. what's your impression of that? >> bank a hot of smaller banks. i think some of these things are harder on smaller banks than they are on larger banks unfortunately. >> thank you, mr. chairman. >> senator chester. >> i want to thank you, mr. chairman, appreciate you holding this important hearing. thank you, mr. dimon for being here. i think it gives us a better chance to understand how and why jpmorgan in your words committed

egregious and self-inflicted mistakes from ineffective poorly monitored, poorly constructed hedging strategy. i like to focus, however, on jpmorgan's role in the days leading up to mf global's bankruptcy resulting in a loss of $1.6 billion in client funds when mf global was obligated by law to segregate and protect. in its final days of operation mf global shuffled hundreds of millions of dollars around from account to account, and what treasurer described as a shell game. mf global customers including many montana farmers and ranchers saw their funds wiped away overnight in this so-called shell game and the firm's failure to segregate funds. though mf global commodity's customers received about $0.72 on the dollar back, the fundamental trust farmers have in commodity futures have been broken because of the firm's violation of a law as well as their failure to segregate client funds, which is a bedrock

of commodities trading. we have new information on the release of mf global trustee james giddens investigation and recommendations lost week. we absolutely need to get to the bottom of this issue to ep ensure montana farmers and ranchers see their funds returned. those responsible for the breach of segregated customer funds are held accountable. over 100 of my constitt wants wants had accounts rated to cover the firm's institutional losses. if anybody was complicit in this, i want to know about it. mr. dimon on may 18th, mr. giddens announced jpmorgan's return of $168 million in cash, proceeds of excess collateral your firm held at the time of mf global's liquidation. funds belonged to customer including hundreds of farmers and ranchers. why did it take your firm seven months to return these funds?

>> weather watcher the bank of mf global. the second they had problems, we immediately went to the trustees and the courts told them exactly what we had and didn't have. we were waiting for them to finish the work before we released anything. no hiding anything. we cooperated every step of the way with the authorities. >> there was money released initially, i believe, when mf global started down this path by your firm. but $168 million, the term that is, that was held seven months. why? if it was their dough, it should have went to them? >> i think we were waiting for the guidance of the court and trustee. we weren't deliberately withholding the money. >> i note mr. giddens investigation singled your company out and highlighted your ongoing negotiations with mr. gidden and potential litigation that and potential litigation he may bring against jpmorgan.

jpmorgan had significant concerns about the health of the firm mf global and compliance with regulations, customer funds, collateral proposed by mf global october 28, 29 was paid with customer segregated funds. according to mr. giddens investigation your firm took steps to protect itself and its exposure to mf global placing mf global on debit alert, limiting the transactions the firm could take and increasing collateral requirements. mr. dimon, despite repeated attempts by senior risk management officials at your firm, include mr. barry subro, whether collateral for the $170 million transfer request was in compliance with the rules regarding the segregated funds k, mf global did not sign a confirmatory letter that your firm demanded. yet without this confirmation and your suspicions, jpmorgan chase ultimately transferred the funds and accepted the

collateral. can you -- were you aware of the effort by senior risk management officer to seek confirmation from mf global? >> not at the time i wasn't, no. >> so why did jpmorgan chase relent on efforts to secure signatures of the letter and allow the transfer without written assurance. >> the transfer had been made and we were doing a follow-up letter, which was not required. we were asking them to make sure they had done the right thing. >> what you're saying is even though you placed mf global on debit alert and you limited -- increased collateral requirements, when they asked you to transfer the money, there was no conversation about whether this money was segregated funds, you just transferred it? >> they transferred it to us, yes. >> it was within your institution they requested a transfer. >> right. it was covering an overdraft from the prior day or something,

yes. >> so the question is -- the real question you guys were concerned about mf global. you know more about the industry than anybody setting up here. you put them on debit alert. they had requested money to be pulled out of -- that was in your facility to be sent to another facility. there was some question by senior management officials in your firm whether this was segregated money, money farmers were hedging with. in your own words hedging was to protect a company in bad outcomes, from bad outcomes. can you tell me if jpmorgan had any obligation to protect those funds. >> my lawyer gave me confirmation they gave oral confirmation and went bankrupt. >> you got oral confirmation on this. is that general operating procedure? >> the general operating procedure, you don't have to ask at all. they are responsible to make

sure they have customer funds. we were using an excess of precaution. >> even when a company is going belly up. >> yes, trying to make sure, also trying to help them at that point. >> i appreciate that. my concern here is because there were a lot of farmers that hedged to protect themselves from bad outcomes. if this money was transferred and it was segregated money, there is a real problem. that's all. just looking out for my folks. >> i hope they get all their money back. i still believe they will, by the way. >> i just want to make sure the individuals that are held responsible -- i want to thank the chairman for his flexibility on the time and thank mr. dimon for being here and thank you for the hearing mr. chairman. >> senator brand. >> thank you very much. mr. dimon, thank you for voluntarily being here. you responded to someone's question earlier describing the things that are good about smaller institutions and things

that create problems in larger institutions. i don't have that list in my memory yet. hubris stands out, arrogance. how do you manage a company the size of jpmorgan and overcome that list of adjectives you described are just a natural occurrence within a large organization. >> they can occur in small organizations, too. we hope we have very good people. >> you aren't talking about the senate surely. >> no. definitely not. not now. look, i think all companies want to have great employees, open, always analyze things, challenge yourself, learning from your mistakes. people are very honest all the time, share reports. i think there are ways you can avoid the negatives of being a big company. so hopefully we foster the right kind of culture at jpmorgan. at jpmorgan we believe we're in business to serve clients. that is job number one. we do it every day around the

world in 2,000 communities around the world. we hope people believe that. it's in their hearts to do it every day the right way. we ask them to treat people the way you treat your friends and your parents. we ask if you see a problem, raise your hand and call the right people. constantly trying to improve products or services. we try to acknowledge legitimate complaints. a lot of legitimate complaints about banking services. we try to acknowledge and fix them. >> mr. dimon, how you manage jpmorgan really is the business of your board of directors, your shareholders, but it does have consequences to those of us that believe in a free market system, its values, its merits. i hope that that -- i have a sense and i hope that's the case a sfont you understand in protecting the free enterprise system, every company large or small conducts themselves, what behavior they exhibit really matters in our ability to be an advocate for a free market

system that creates jobs and economic opportunity and allows americans to pursue the american dream. anything i'm missing here? >> i couldn't agree more. >> let me ask a question. our ranking member, senator shelby talks often about sufficient capital as the greatest deterrent towards too big to fail, towards systemic risk. i certainly agree with that. what are the other components that is involved, i think, in trying to make certain that the taxpayers are not responsible for the demise of a company like yours, a financial institution like yours, is the living will, so-called living will. would you describe to me what process jpmorgan has gone through to develop that living will, how transparent it is, what role the regulators play. what evidence if we saw the living will developed for jpmorgan would give me or others satisfaction that your company

can be dissolved without a call upon taxpayer dollars? >> i agree with most of the people here, we have to get rid of anything that looks too big to fail. we have to allow big institutions to fail. it's part of the health of the system. we shouldn't prop them up. we have to allow them to fail. i go one step further. you want to be sure they can fail and not damage the american economy and american public. a big bank, you want to be in a position where a big bank can be allowed to fail. i wouldn't call it resolution, the wrong name, bankruptcy, personally i call it bankruptcy for big dumb banks. i'd fire the manage, the board, wipe out the equity and unsecured, recover whatever they recover in a normal bankruptcy. this resolution authority which starts to put the structure in place. the living will, to me what it means is giving information to regulators, they know how to do it. we do it around the world. a little more complex. fdic has taken down a lot of

large banks without damaging public including wamu, american savings banks. it's a little more complex now. we have to update it. they need to know what happens to this legal entity, that legal entity, what happens if this happens. we've filed an analysis and report how they would go about dismantling jpmorgan that didn't cost the taxpayer. we're in favor of one other thing, if the fdic puts money -- i think the bank should be dismantled after that and buried in disgrace. a little old testament justice here. even if it costs the fdic money like today it should be charged back to other big banks. i know it's a government program paid for 100% by jpmorgan. during this crisis we pay them $5 billion. we're paying fdic. i think it helps help and incentive on other big banks to

collaborate and rules are in place we don't jeopardize each other. >> if jpmorgan became a big dumb bank and was in serious financial difficulty, is your sense that it would be -- don't want to be dissolved. it would be -- the circumstance would be concluded with jpmorgan's demise and no cost to the taxpayer? >> yes. >> that's the objective, yeah. >> senator. >> thank you, mr. chairman. mr. dimon. i understand jpmorgan is lending more money to businesses and i appreciate that. however, it appears your bank's lending is not keeping pace with the deposits you're taking in. last year jpmorgan reported that it had $1.1 trillion in deposits. this of course is more deposits than any other bank in the united states. the other big banks reported

loan to deposit ratios that are 10 to 20% higher than your banks. seems like lending to american businesses would be less risky than what was being done in the london office. is your loan to deposit ratio lower than your peer banks because you are, perhaps, prioritizing these risky trading activities over lending. can we hope you're going to focus on lending more in the american market? >> we are making all good loans we can. in all good haste we're a global money center bank. what that means, we have deposits from governments around the world, sovereign entities that can be taken out tomorrow. we do have to keep liquidity. we have several billion dollars invested right now in central banks around the world in case the biggest companies call us up and say send us the $5 billion.

we're a bank for people, we need huge liquidity funds. >> i understand and i think the records indicate that your reported loan to deposit ratios, your other big banks, their reported loan to deposit ratios are 10 to 20% higher than yours of that would seem to not square with your statements that you're wanting to lend but don't have the customers to lend to? >> our middle mark loans up 12% on average the last eight quarters, small business loans up 52%, large corporate loans change all the time because corporations have choices. our mortgages $40 billion, which was a huge number of new mortgages. what i'm saying is we need -- we're not like all other banks. we do need to keep a lot of cash around to deal with immediate cash demands. when you talk about some of the biggest companies in the world,

they can move 5 to $10 billion in a day. >> i appreciate that. >> just one final comment again. the biggest banks with whom you are competing are generally described in the same way you just described yours. their loan to deposit ratios are higher than yours. >> they are all different for historical reasons. >> mr. dimon, senate offices like ours often hear from constituents trying to get a modification under home loans or stave off foreclosures. they typically come to us because they are having trouble getting through to their lender. sadly it's all too common for our constituents to say that the bank lost their paperwork. four years since the crisis began we're still hearing about these mix-ups. as a constituent and one of many i'm sure who had a loan with jpmorgan noted recently, quote, i don't want to lose my house because they can't keep their

paperwork straight. so the question is why have banks been unable to sort out these paperwork problems, mr. dimon. >> i agree with the constituent. they should not loose a home because we failed on their paperwork. i would love you to send that one to me and i'll deal with it right away. we've hired 20,000 people for default modifications. we've offered modifications of 1.2 million loans, alternatives to foreclosures. we're doing it better. we're doing it faster today. we put in more systems to deal wit. i have to confess we weren't very good at it when the problems started. we were overwhelmed. >> mr. dimon, i'm sure we agree the cio office carries out complicated transaction and you employ some of the smartest in the industry to work for you. your bank complicated business

on the one hand. on the other hand you and other banks as your size can't do something as simple as straighten out your own paperwork promptly. does the plight of the american home owner have the same attention or should it have the same attention that the bank gives it to its cio office? >> yes, should. we should do it prob properly. for anyone in the. if anyone in the room has issues, send it to me or the staff and we'll take care of it right away. >> thank you. mr. chairman, thank you. >> senator. >> thank you, mr. chairman and thank you mr. dimon. i think this has been very instructive to the public and to the members of the committee. i think you told senator shelby that the purpose of hedging is to earn a lot of rue in the event of a crisis. i think you said that hedging worked to an tend in 2008 for

your company. can you quantify the extent to which hedging worked in 2008? >> i don't recall 2008 year. the synthetic portfolio did earn income in the three to four years before it lost some of it. we could follow up and give you more details than that. >> i think that's probably what we need to do. would the volcker rule -- i think you also said you didn't really know what the volcker rule is. boy, if you don't, we don't either. but i think you know how it's being drafted. as its currently drafted, how would that have affected the cio's ability to do that hedging in 2008 and prevent several billion dollars worth of losses. >> i think you're allowed portfolio hedge under current volcker, you should be allowed to. what it morphed into, i don't know what the current rule would do. i think we should step back a second, i think senators would agree with me.

the important part of volcker rule isn't portfolio hedging but ability to actively make markets, raise capital for companies and clients and investors. we have the widest, best, deepest and most transparent capital mark in the world. capital markets of america are part of the great economic business engine. we had the best in the world. we had problems. we should recognize we're the best. we don't want to throw the baby out with the bath water. how does it benefit we have the best capital markets. the cost of buying a share of stock is a tenth of what it was a year ago. the cost of a corporate bond, a tenth of what it was a year ago. the cost of interest rate swap, a tenth of what it was a year ago. the beneficiary, anyone investors buy or sells securities does it at a cheaper price, which means they -- fidelity, pimco, the people they invest for are doing things cheaper. that is a good thing for them. it also allows corporations to

issue debt cheaper and quicker. if a large corporation wants to issue $5 billion, it can be done in a day around the world. they get a better deal at a cheaper price than they otherwise have gotten. liquidity in the markets keeps the spread low and benefits investors and issuers. the secondary markets and primary markets are directly related. if the costs are low here. if consumers, investors educated about companies and we spend a billion dollars educating people then issuers can do it. remember, the investor is notifinot fidelity, who they are investing for, mothers, state and local plans, it's a good things. the volcker rule has so many pieces to it. all we've been urging, don't think of it as binary, think of it as traffic laws. some cars should go 65, some shouldn't. some streets should be different, some bryce should be

light. we have the widest, deepest and best capital markets in the world. it would be a shame to shed that out of anger or something like that. remember, all these securities are different. if we're going to make markets on liquid securities, we need to own that for a while. we can't turn them over very quickly. we need to buy securities in anticipation of investors demand. we need to buy securities from you we may not be able to sell tomorrow but you want to sell right now. you're our client. we make a little money every time it happens. not a lot. we don't take a lot of speculation in these areas. all we've asked when it comes to volcker, go through the detail to get it right we end up with widest, best, deepest capital markets in the world. i don't want to sit here in 20 years and try to figure out why it's elsewhere. >> thank you. i hope you can appreciate i only have five minutes. >> i've been waiting to say it. i'm sorry. >> doubtful i get a second round here. >> i think you told senator

corker, the financial system is safer today and you can't say dodd/frank has helped at all. i think you then went on to say actually the regulation regime is not necessarily stronger today but more complex. you don't really know what the jurisdiction is. have i paraphrased your testimony correctly? >> i think some of the things dodd/frank and other things made it safer. most was higher capital, better liquidity, better risk management. a lot of the things that caused the problem don't exist anymore. that wasn't because of regulations. that's because of markets. off balance sheet vehicles, subprime mortgages. >> you said something else that really sort of caught me by surpri surprise. that was this testimony nobody got all the parties in a room with people in your industry, democrats, republicans, and

folks affected and talked about what was needed and what really needed to be fixed. did i hear you correctly there? >> yes. >> duval tear to be part of the conversation? >> yes me and other people involved we'll get apartments down here. we spoke to a lot of people. our folks did analysis and research. lack of collaborative took place. i don't know if it was a rush. i know anger led to that. but i think it would be better if there had been more collaboration. at the end of the day all shake hands, new system in place and move forward. >> i'm going to follow up with a question for the record. let me ask this question about the living will. are you telling this committee jpmorgan chase has a living will that has been approved by government regulators. >> drafted and circulated and given to regulators. they will be responding to this.

i think several iterations to get it right. they have to coordinate with foreign entities so it will take time. >> thank you. >> senator merkel. >> thank you very much, mr. chairman. thank you for coming before the committee mr. dimon. in 2008, 2009, your company benefit freddie half a trillion dollars in low cost federal loans, $20 billion in t.a.r.p. loans, t.a.r.p. funds, untold billions through the bailout of aig that helped address massive agreements and purchase derivatives. with all of that in mind, wouldn't jpmorgan have gone down without the massive federal intervention both directly and indirectly in 2008 and 2009. >> i think you were misinformed. i think that misinformation is leading to a lot of the problems we're having today. >> jpmorgan took t.a.r.p. because we were asked to by the secretary of treasury of the united states of america. with the fdic in the room, head

of the new york fed tim geithner, chairman ben bernanke. we did not at that point need t.a.r.p. we were asked to because we were told, i think correctly so, if the nine banks there, some may have needed it, take this t.a.r.p. and get it to all these other banks and stop the system from going down. we did not borrow from the federal reserve except when they asked us to. please use these facilities. and we were not bailed out by aig. okay. aig itself we would have had a direct loss of a billion or $2 billion if aig went down and we would have been okay. >> you have a difference of opinion many analyst with the situation felt aig bailout did benefit you. i'm not going through the argument with you now. this is not your hearing. i'm asking you to respond to questions. i also only have five minutes. let's agree to disagree. many analysts reached the conclusion if you applied old testament justice in 2008 and

2009 jpmorgan would have gone down and you would have been out of a job. it goes to the enormous frustration how many companies in the history of the planet have been offered half a trillion dollars in low interest loans. not many. but the basic concept behind the volcker firewall is banks are in the lending business, not in the hedge fund business. do you share that kind of basic philosophical orientation? >> we are not in the hedge fund business. >> okay. i wanted to turn to to the report, reports jamie dimon ceo to chief investment officer, had her report directly to him, government backed securities, seeked profit by speculating higher yielding assets such as credit derivatives according to half a dozen former executives of the company. that sounds like offering a hedge fund and doing so at your

direction with government insured deposits. >> here are the facts. we have $350 billion assets in cio. average rating is aa plus. the average maturity has duration of three years, not 20 or 30. the average yield is 2.7%. those characteristics are a very conservative portfolio. one of the other senators mentioned -- in addition to that we had $150 billion seen in central banks around the world. other senator pointed out we don't make enough loans, less loans to deposit is conservative not aggressive. in the other area, yes, there's legitimate credit, synthetic credit. >> david olson, former head of credit trading said, we want to ramp up ability to generate profit for the firm. this is jamie's new vision for the firm. you would fundamental disagree with -- >> i don't believe everything i read. i hope you don't agree either. >> you disagree.

>> i don't know what he means. i would have to have a detailed conversation. >> here is the picture that emerges, one dramatic five fold over a four-year period. numerous executives of your firm testified at your personal direction they were to invest in higher yielding assets rather than traditional government-backed securities. yet when those bets go bad, instead of taking responsibility for it, you blame it on the unit you set up. shouldn't you take personal responsibility since they were following the game plan you personally laid out? >> the $350 billion portfolio is conservative and has an unrealized gain of $7or $8 billion. i already said synthetic credit, that's why i'm here. we made a mistake. i'm absolutely responsible. the buck stops with me. >> the heart of the volcker rule addresses liquidity management and says the funds in between loans, if you will, should be

invested in either treasuries or government-backed instruments. taking those same deposits and putting them into high risk investments and credit derivatives is a strategy laid out invoker rule. impuzzled by your comment early on you're not sure whether the vision laid out by the firewall between hedge funds and banking would have prevented the type of operation you set up in london. >> the $350 billion is very conservatively done and is allowed under volcker. you want us to have a nice conservative portfolio. i've confessed to the sins of the synthetic credit side. we will not do something like that again. it doesn't stop us doing good stuff with 350 or making $700 in loans. we are doing what a bank is supposed to do. we do it every single day. >> i'm hearing from what you're saying, your game plan going forward with surplus deposits,

managing them, going to return to the strategy of relatively safe relative liquid investments rather than operating, if you will, in the derivatives world. >> the current strategy is relatively safe and relatively liquid. >> thank you very much. >> you're welcome. >> i understand we have two votes beginning at noon. >> please. >> senator. >> thanks, mr. chairman. thanks very much, mr. dimon, for being here and for your testimony. you made the statement it isn't more regulation, stronger, smarter regulation. i absolutely strongly agree with that. ening most of dodd/frank has been more regulation, which in many cases has been more confusing, unhelpful regulation. another way i might put it is i think we need more systemic

changes, less micro management. the big systemic changes that are under discussion that impact what we're talking about are capital requirements and the volcker rule. so i wanted to explore that with you. capital requirements. i understood when you criticized previously the requirements for bigger banks. >> no. more about the details behind it. when we went through the crisis we had 7% tier one. during worst times we had wamu, never went down. all the rules will be at 14%. there is an issue. how much capital is enough. we never argued about having more capital.

we have no problem at 10, 11, 12. but the calculation should be done fairly and properly. some of them make it harder to have proper capital. i particularly have complaints about how the gsif charges are done. >> do you think big banks should have clearly higher capital requirements? >> i'd be fine with that in general. >> compared to the 7% floor for a bank as big as yours, where do you think that should be. >> my own opinion they should have come said you all if you're over a certain size you can have eight. looking down the road, because eight is plenty and it doesn't create confusion. people don't know what the real requirements are yet because the rules aren't in place. it takes years to come in. >> your suggestion is eight. clearly it's beyond eight. >> eight. let the regulators have time, if they think this is the wrong number down the road, change it again. this isn't a once in a lifetime change. what i was worried about is what

i call capital confusion. they don't know when the capital is, where it's supposed to be, how it's going to be evaluated. that is not conducive to lending, that's retaining capital and reducing balance sheets. >> clearly there are other folks -- for instance, switzerland is requiring 19% of their two large banks. you think that's clearly overkill? >> yes. the 19 is not comparable to my 10. >> what would be an apples to apples comparison. >> it is much higher but i don't remember the number. but they have a different problem. those banks dwarf the size of those companies. >> the volcker rule, is there a true real version of the volcker rule you think makes sense and should be implemented? >> i think really struggle to get it right. it was written so vaguely, hard