According to a blistering 300 page Senate report released yesterday, JPMorgan (JPM) executives misled regulators and were less than forthcoming about key information regarding the bank's financial exposure related to the "London Whale" trading losses.
The findings were released on the eve of a Senate hearing underway today in which several past and present JPMorgan officials will testify regarding the trading losses. CEO Jamie Dimon will not be testifying today, but Senate reserves the right to hold more hearings on the matter.
Nothing happens in Washington or finance without some sort of underlying agenda. The length and depth of the Whale investigation has the Wall Street gossip mill in overdrive. The most popular theory is that the report is both a slap at Mr. Dimon -a staunch critic of government involvement in banking regulations- and the first salvo in the ongoing fight over the Volcker rule.
Fred Cannon, chief equity strategist at KBW agrees. He says there are two underlying but related issues in play during today's testimony: "Are these institutions really able to be examined?" and "are the trade books even manageable to anyone?"
JPM has two choices in terms of how to respond to the report. One is to claim the delays in disclosure were a function of news making its way gradually through a massive organization. The other option is to humbly confess to intentional obfuscation and throw itself a the mercy of the Senate.
The first is a tacit admission that JPM, by most accounts the best run major bank extant, isn't able to control or even be aware of massive risks in its portfolio. Confessing to hiding the potential losses from both investors and investigators isn't something the bank is going to do. That leaves "confessing as little as possible and dismiss the whole thing" as a third option. It's a strategy that shouldn't exist in front of a Senate investigation but has worked quite well in the 6 years since the financial meltdown started.
It would seem the government has Jamie Dimon's team backed into a corner and ready to take its best shot at imposing the Volcker rule as is, necessitating a massive restructuring of JPMorgan and its peers as we know them. Today's testimony is merely the undercard; the main event comes if and when Jamie Dimon himself gets the chance to strike back.