JPMorgan Chase & Co. (JPM:US) Chairman and Chief Executive Officer Jamie Dimon said the bank probably will seek to reclaim pay from executives responsible for $2 billion in trading losses.
“We will take proper corrective action and it is likely there will be clawbacks,” Dimon told the Senate Banking Committee today.
Lawmakers questioned Dimon on the trading loss amid investor criticism of Wall Street pay practices. Dimon encouraged his chief investment office to make bigger and riskier trades, former employees have said, while he became one of the highest-paid CEOs in U.S. banking, taking home more than $1.9 million a month on average in 2010 and 2011.
“The board will review every single person involved in this case and figure out what’s appropriate,” said Dimon, 56. The clawbacks will be “somewhat limited” to what employees received in the previous two years, he said.
The loss arose after trades on credit derivatives soured, Dimon said May 10. Shares of the New York-based bank fell 17 percent since then through yesterday.
The JPMorgan board awarded Dimon $23 million in salary and bonuses for his performance in 2011. Ina Drew, who oversaw the CIO, received $14 million for 2011. The bank said May 14 that she would retire.
In a subsequent interview on CNBC, Dimon did not say whether he would have to give back any of his compensation.
“My comp is set by the board of directors,” Dimon said. “I assume they will incorporate this in how they evaluate me.”
Dimon is chairman of the board. Lee Raymond, the former Exxon Mobil Corp. (XOM:US) CEO, is head of the board’s compensation committee. Other members include Yum Brands Inc. CEO David Novak, Johnson & Johnson Chairman William Weldon and Comcast Corp. executive Stephen Burke, according to the bank’s website.
“For senior people, which most of these people are, you can claw back for even bad judgment,” Dimon told the committee. “You can claw back any unvested stock, you can claw back for things like cash bonuses, so it’s pretty extensive.”
Soaring pay pushed traders to disregard risk and helped to spark a global economic slump in 2008, the Financial Crisis Inquiry Commission said last year. Wages in the financial sector also limited regulators’ ability to lure top talent to police banks, the panel found.
“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,” Dimon said today. “Some of that was inappropriate.”
The lender’s pay policies might offer some insight to lawmakers, said Simon Johnson, a former chief economist at the International Monetary Fund, before today’s hearing.
“What was the compensation arrangement for people in the CIO, including traders and executives?” asked Johnson, who now teaches at Massachusetts Institute of Technology’s Sloan School of Management. “If they were paid based on firm-wide results, they were hedging. If they were paid based on returns in CIO itself, this is prop trading.”
Proprietary trading refers to banks’ bets with their own money, a practice lawmakers including Senator Jeff Merkley, a Democrat from Oregon, are seeking to curtail.
“Nobody in the CIO is paid on a formula,” Dimon said today. “They’re not allowed to just do what they want. They were paid for what they did for the whole company.”
JPMorgan paid the 25,999 employees at its investment bank an average of $341,552 last year, or about 34 percent of the unit’s revenue. The salaries are necessary to compete for the best people, Dimon said during a Feb. 28 presentation.
“We need top talent,” Dimon said at the time. “You cannot run these businesses with second-rate talent.”
Regulators have sought to limit risk-taking at banks that hold federally insured deposits after bad loans and wrong-way bets on credit derivatives almost destroyed the financial system in 2008. Dimon’s firm was among lenders that accepted bailout funds, and has since repaid the government.
To contact the reporters on this story: Dawn Kopecki in Washington at email@example.com; Donal Griffin in New York at firstname.lastname@example.org
To contact the editors responsible for this story: Maura Reynolds at email@example.com; David Scheer at firstname.lastname@example.org