"[W]e are still reviewing the facts...”
Lesson: Never speak out publicly in a definitive way until you fully know the facts. You will not fully know the facts for months.
"...I will explain everything I can to the extent possible."
Lesson: Even for Dimon, transparency matters.
"CIO's strategy...was poorly conceived and vetted. The strategy was not carefully analyzed or subjected to rigorous stress testing.... CIO's traders did not have the requisite understanding of the risks they took.”
Lesson: Didn’t we learn this lesson in 2008? Back then we learned that some strategies had assumptions that seemed poorly founded in retrospect. This was particularly true about the behavior of the mortgage markets and their derivatives. Guess the lesson is that most people never learn this lesson. Before a system or strategy is implemented, and periodically thereafter, management (including the board) should ask the probing questions. Make no assumptions on this score.
"Personnel in key control roles in CIO were in transition and risk control functions were generally ineffective in challenging the judgment of CIO's trading personnel.”
Lesson: The press reported that the CIO’s then-current chief risk officer began to internally express his concerns about London office trading strategies last year. This past January, he was replaced as the head of risk by a former trader who, at least according to the press reports, had no prior risk management experience. This lesson relates to human nature: it's very hard to appreciate someone who has a different point of view. Watch out – he may be right.
"Risk Committee structures and processes in CIO were not as formal or robust as they should have been.”
Lesson: Assessments have to be substantive, robust, and “real”, and be tested and documented regularly as assumptions and/or reality changes. Structure, process and formality may not protect you from all losses, but they can provide a protective shield that will hopefully mitigate them. Be sure to build your protective shield.
