JPMorgan Chase CEO James Dimon’s apology for the bank’s $2 billion-plus loss in early May offered a rare glimpse of a Wall Street executive accepting blame. According to The Wall Street Journal, Dimon told the Senate Banking Committee on Wednesday that “the buck stops with me,” and that he was “dead wrong” to claim that early warnings about risks the bank was taking were “a tempest in a teapot.”
But is an apology all it should take to erase what went wrong? As Wharton faculty commented in a recent Knowledge@Wharton story on the subject of the bank’s loss, $2 billion will be easily absorbed by the firm. The real issue, they say, is whether banks like JPMorgan are taking unnecessary risks — that is, whether they learned anything from the recent financial crisis.
Still, Dimon’s apology seemed to hit all the right notes. In a previous article in Knowledge@Wharton on the subject of apologies and restoring trust, Wharton operations and information management professor Maurice Schweitzer said that in order for an apology to be effective, “it should be perceived as sincere and … substantial. In other words, it should be accompanied by penance.”
In terms of his apology, “James Dimon’s strategy is sound and smooth,” says Wharton management professor Lawrence Hrebiniak. “While the scepter of the ‘King of Wall Street’ has been tarnished, he personally is safe, job assured, and now can go on the offensive. By humbly stating that ‘the buck stops here,’ that he trusted executives who had told him that the losses were an aberration of little concern, and by relying on his past ‘halo’ in the industry, Dimon can move on. He’s taking the blame [and] taking the heat off his company.”
That is, if you can even call it “heat,” he adds. The recent Senate Banking Committee hearing “was a joke of sorts, with few tough questions and almost a feel-good atmosphere.”
Hrebiniak notes that although many observers believe that the so-called Volcker rule — part of the proposed Dodd-Frank financial overhaul — would have prevented the trading fiasco which could add up to as much as $5 billion in losses, “Dimon calmly said that some aspects of the rule make no sense and implied that more regulation of this type won’t solve many problems. The weak questions by most senators, and even an invitation by a senator to Dimon to locate JPMorgan Chase in his home state, suggest that Dimon’s confession and recognition of his own shortcomings are deflecting pressure from the real issues, protecting his company and getting the good old boys in the Senate on his side. Dodd-Frank beware!”