JP Morgan close to agreeing $13bn settlement with US authorities

Settlement is greater than the expected $11bn and does not release the JP Morgan from any criminal liabilities

America's largest bank, JP Morgan, is close to finalising a $13bn (£8bn) record settlement with the US authorities over a number of issues related to the subprime mortgage crisis.

The settlement, described as tentative in some reports, is even greater than the $11bn that had been expected and is said not to release the bank from any criminal liability. It would also be the largest ever between the US government and a single company.

The bank's chairman and chief executive Jamie Dimon had been involved personally in the discussions with the US Department of Justice and this month JP Morgan admitted it had incurred legal expenses of $9.2bn from regulatory investigations and lawsuits.

In total the bank has put aside $23bn for potential litigation since 2010 – and has warned this could rise by a further $6.8bn – in moves that illustrate the stunning reversal in fortunes of a bank that had survived the banking crisis relatively unscathed.

JP Morgan now faces more than a dozen investigations globally – from alleged bribery in China to a possible role in manipulating benchmark interest rates set in London known as Libor.

Dimon had steered the bank through the financial crisis without ever reporting a quarterly loss, but that record ended this month when he had to admit that legal expenses drove the firm to a loss of $400m.

The latest settlement relating to mortgage-backed securities follows a fine of more than $900m from a number of authorities over last year's London Whale trading incident, which Dimon had originally attempted to brush aside as "tempest in a teapot".

The Whale episode also lost the bank $6.2bn and Dimon's bonus was halved as a consequence.

At issue in the latest settlement is whether the bank sold mortgages that it knew were riskier than they appeared. Investors, including government-owned mortgage agencies Fannie Mae and Freddie Mac, said that the bank told them loans were safer than they were, or that the bank was negligent in not verifying information from borrowers relating to their income and their ability to repay the debt.

A sizeable chunk of the $13bn relates to customer redress. According to Bloomberg the settlement includes $4bn to the Federal Housing Finance Agency – which incorporates Fannie Mae and Freddie Mac.

Dimon secured the tentative deal in a meeting with the justice department's attorney general, Eric Holder, according to CNBC. Steve Cutler, the bank's general counsel, and Tony West, Holder's deputy, were said to be involved.

Dimon and Holder had met face-to-face in Washington last month. A well-connected figure in financial and political circles, Dimon took the helm of JP Morgan in December 2005. He is now running the biggest US bank in terms of assets.

As well as surviving the financial crisis, the banker has also resisted calls to split his joint roles at the bank.

The settlement is partly the result of JP Morgan saving two firms – Bear Stearns and Washington Mutual – which account for about 80% of the securities involved in the $13bn fine. The US government encouraged JP Morgan to rescue both institutions as they were collapsing during the financial crisis.

This month the bank said Dimon was no longer chairman of JP Morgan's main US retail banking subsidiary.

JP Morgan did not comment, and the US department of justice could not be reached.

Ongoing tempest

For all his smooth talking, it is likely that the most memorable line to emerge from the career of JP Morgan boss Jamie Dimon will be his crack about a "tempest in a teapot". That was his attempt to dismiss reports of problems in the bank's London office, where it turned out that his traders had lost $6bn.

The comment was perhaps the result of confidence gleaned from years of uninterrupted success, which included being one of the few bankers to emerge from the financial crisis with an enhanced reputation. However, the pressure is now increasing on Dimon as he wrestles with a string of legal complaints.

This was not how it was all meant to be, as Dimon has long appeared to have led a blessed life.

A protege of former Citigroup boss Sandy Weill, who is often described as a "Wall Street legend", he graduated as a Baker scholar from Harvard Business School, an honour given only to the top 5% of the graduating MBA class. His classmates included GE boss Jeff Immelt, and Dimon's future wife, Judy.

Article Source : http://www.guardian.co.uk

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Whale of a fine: after blowing $6bn, JP Morgan's trader costs another $920m

Chairman Jamie Dimon sends letter to staff warning of 'more to come' after regulators hit bank with fine

Last spring the City of London was rife with rumours about a trader at the vast JP Morgan investment bank who was making such huge bets on the highly complex – and deeply risky – derivatives markets that he was known as "the London Whale" or "Voldemort". After racking up losses of $6bn (£3.7bn) from his reckless trading, the London Whale blew another hole in the bank on Thursday – landing the Wall Street firm with one of the largest fines ever levied against a single bank.

The Whale was a French-born trader, Bruno Iksil. When stories of his dangerous dealings and the scale of the potential black hole first surfaced, JP Morgan's chairman Jamie Dimon, then Wall Street's most respected banker, shrugged off the losses off with a phrase that will haunt his career: "It's a complete tempest in a teapot," he insisted.

On Thursday, however, the bank agreed to pay some $920m in penalties to US and UK regulators over the "unsafe and unsound practices" that had allowed the bank's losses to balloon to $6.2bn. The near record fine comes as former JP Morgan bankers face criminal action in the US and it has all but sunk Dimon's once promising political career. It is also just one of a series of costly and damaging scandals that are rocking the financial institution.

The US's biggest bank must now hand over $300m to the US office of the comptroller of the currency, $200m to the Federal Reserve, $200m to the securities and exchange commission (SEC) and £137.6m to the UK's City watchdog, the Financial Conduct Authority (FCA). One other US regulator, the commodity futures trading commission, did not sign off on the fine and is still investigating whether the bank is guilty of market manipulation.

JP Morgan admitted wrongdoing as part of the settlement – an unusual step for a financial firm in the crosshairs of multiple legal actions. This week, in a letter to staff, Dimon warned them that, even after the fine, there was "more to come".

The opinions of the regulators were uniformly damning. "JP Morgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses," co-director of the SEC's division of enforcement, George Canellos, said. Senior management "broke a cardinal rule … and deprived its board of critical information," he said. The bank was accused of "unsafe and unsound practices".

The FCA, levying its largest fine to date, said: "The firm's failings were extremely serious. The losses were caused by a high-risk trading strategy, weak management of that trading and an inadequate response to important information which should have notified the firm of the huge risks present."

The Whale's losses are not JP Morgan's only problem. The bank emerged relatively unscathed from the financial crisis, leaving Dimon as the only untarnished king of Wall Street, but the recovery has been less kind. JP Morgan has already faced vast fines for what became known as robosigning – automated procedures which forced thousands of US homeowners out of their houses without following the correct procedures.

On Thursday the bank also agreed to pay $389m to settle allegations that its credit card customers were duped into purchasing services they did not want. At least eight federal agencies are investigating the bank on issues ranging from its mortgage lending practices to its role in fraudster Bernard Madoff's Ponzi scheme. Regulators are reported to be pressing for a $6bn penalty to settle allegations that the bank mis-sold $33bn of bonds backed by sub-prime mortgages to US government-controlled mortgage companies in the run-up to the financial crisis.

In an indictment unsealed in federal court this week Javier Martin-Artajo, who oversaw trading strategy at the bank's London office, and Julien Grout, a trader who worked for him, were charged with securities fraud, conspiracy, filing false books and records, wire fraud and making false filings to the SEC.

Dimon has learned from his "teapot" comment and is now expressing contrition for the bank's debacle. "We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them," he said. This year the bank has hired 3,000 staff to work on "compliance" – or working within the rules.

But reaction to the fine was mixed. John Coffee, professor at Columbia Law School, said: "The victims of this enormous loss were the shareholders of JP Morgan and the remedy is for those shareholders to pay $900m plus in fines. It's not just adding insult to injury, it's adding injury to injury."

No senior bank official has been charged with wrongdoing and Coffee described those indicted so far as "relatively small fish". He added: "Ideally the regulators should fine actual individuals who are responsible. But time and again the SEC settles for large penalties and gives virtual immunity to some officers."

Article Source : http://www.guardian.co.uk

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