JP Morgan, US Govt settle on penalties; talk of "criminal probes" all bullshit

[The Minsky Moment]

True

But they're trying to save themselves from prosecution and they paid $100 million and admitted wrongdoing (one day of bad acts) to 'settle' an investigation into the London Whale business. From my understanding that means the regulator involved won't be investigating whether there was price manipulation involved or taking any further actions on that.

They already paid for the same conduct:
300 million to the OCC
200 million to the Fed
200 million to the SEC
221 million to the Financial Conduct Authority (they price in sterling    )

So the total bill is way over 1 billion in dollars, plus the all the money they lost making the trade.

None of these agencies have criminal prosecutorial power (the UK one might, don't know).  The US attorney in NY however, has brought criminal charges against individual bankers involved in the trades.

Not clear what else should be done here.  If anything JPM could have a beef about all the chefs stirring the same regulatory soup.

[Neil]

They don't have to do business across international borders.

No, they need to have their charter pulled.

[Sheilbh]

None of these agencies have criminal prosecutorial power (the UK one might, don't know).  The US attorney in NY however, has brought criminal charges against individual bankers involved in the trades.

Not clear what else should be done here.  If anything JPM could have a beef about all the chefs stirring the same regulatory soup.

The CFTC settled their investigation for another $100 million and for the admission of wrongdoing.

I don't know about the internal politics there but Scott O'Malia who's apparently a Republican Commissioner dissented on that : "As a threshold issue, I question whether it is in the public interest to settle with JPMorgan on a lesser "manipulative device" charge. I am concerned that in a rush to join in on a settlement brokered by other regulators, the commission may be missing the opportunity to pursue allegations of greater wrongdoing – price manipulation."

Which I'd agree with. If there's evidence of price manipulation then I think it's definitely in the public interest to investigate and prosecute that, rather than settling on a lower charge. The way the articles used the language of 'charges' made me think they had prosecutorial power, that might be wrong.

Two individual traders have been charged but I believe the Whale has turned whistleblower so won't get prosecuted. I'm not sure that's necessarily in the public interest given what I've read didn't seem to suggest that anyone was lacking evidence. Also I think the FBI said that oversight was basically a 'rubber stamp' which again makes you wonder if it's really enough just to look at the traders.

No idea about the status of the UK investigation. In unrelated investigations I think Italian prosecutors are looking at JP Morgan for obstructing regulators over Monte Paschi and apparently JP Morgan's chief London trader is linked to the currency manipulation investigation, though that's related to his time at RBS.

[KRonn]

Let me see if I got this right, putting this out there for debate, because after seeing a bit more on the news it seems that JP Morgan isn't as culpable. JPM bought out Bear Stearns and Washington Mutual, these companies are the ones that gave out the majority of the bad mortgages prior to JPM taking them over. Now the govt. is going after JPM for what was done by others. Same will go for other corps like Wells Fargo which took over a bank which sold a lot of bad mortgages but probably did much less wrong themselves at WF. These mortgages were bought by Fannie Mae and Freddie Mac which sold them as mortgage securities, so those govt. entities are culpable for selling the bogus securities. They had to know the securities were lousy. The whole thing seems to need a lot more thought and there would seem to be a lot more people responsible, including in the government.

[The Minsky Moment]

IIRC the London Whale trades were a colossal screw up.  Lots of players eagerly took the other side and profited (including some JPM people).  So the "market manipulation" theory is a bit puzzling.

What I think is of greater concern is the holes the affairs exposed in the bank's internal risk management and that is what explains the regulatory response and the fines.

[Sheilbh]

Let me see if I got this right, putting this out there for debate, because after seeing a bit more on the news it seems that JP Morgan isn't as culpable.

My understanding is the mortgage securities investigation relates to 2005-7, so I think it predates their acquisition of Bear Stearns or Washington Mutual.

IIRC the London Whale trades were a colossal screw up.  Lots of players eagerly took the other side and profited (including some JPM people).  So the "market manipulation" theory is a bit puzzling.

The articles I've seen on this aren't terribly clear. What I gather is the law on market manipulation has changed. Previously there had to be intention and the trades had to have the effect of making an artificial price. Now it looks like Dodd-Frank reckless trading that manipulates prices (so if there's no intent) and banks trying to manipulate the price, even if they fail (so they don't actually have an effect). I'd guess that's what he's referring to.

From what I can see the CFTC accused the bank of both reckless manipulation and 'employing a manipulative device' without actually having to prove that they did manipulate the price.

London Whale sales on February 29 (the one day of bad acts the Bank admits) were around $7 billion and apparently accounted for over 90% of the net volume traded that day.

I don't know any more about how that law works in practice, or even if this is perhaps the first time it's been used.

[Ed Anger]

I Chase.

[The Minsky Moment]

Let me see if I got this right, putting this out there for debate, because after seeing a bit more on the news it seems that JP Morgan isn't as culpable.

My understanding is the mortgage securities investigation relates to 2005-7, so I think it predates their acquisition of Bear Stearns or Washington Mutual..

The point however is that it related primary to securities underwritten or packaged by Bear or WaMu (I think?)
The mortgage settlement also IIRC does not give immunity from criminal prosecution.
14B ain't exactly cheap, even for a bank like JPM.

[The Minsky Moment]

Let me see if I got this right, putting this out there for debate, because after seeing a bit more on the news it seems that JP Morgan isn't as culpable. JPM bought out Bear Stearns and Washington Mutual, these companies are the ones that gave out the majority of the bad mortgages prior to JPM taking them over. Now the govt. is going after JPM for what was done by others. Same will go for other corps like Wells Fargo which took over a bank which sold a lot of bad mortgages but probably did much less wrong themselves at WF.

That's what it looks like.
Although JPM arguably took those risks when they bought Bear and WaMu on the cheap.

These mortgages were bought by Fannie Mae and Freddie Mac which sold them as mortgage securities, so those govt. entities are culpable for selling the bogus securities. They had to know the securities were lousy. The whole thing seems to need a lot more thought and there would seem to be a lot more people responsible, including in the government.

At the time the purchases were made, Fannie and Freddie were private companies with private ownership.  Competition for business drove them to lower underwriting standards.  There was supposed to be oversight by HUD and Congress, neither of which covered themselves in glory.  The wisdom of assigning a housing agency (HUD) with primary oversight responsibility for a financial institution can fairly be questioned.

[Sheilbh]

Incidentally another prosecution they're looking to settle:

JPMorgan may face federal sanctions over Madoff ties: NY Times
Thu, Oct 24 2013

(Reuters) - JPMorgan Chase & Co (JPM.N) may be forced to make a deal with federal authorities to avoid criminal prosecution over its handling of accounts of imprisoned swindler Bernie Madoff, The New York Times reported on Thursday.

The newspaper said federal prosecutors and representatives of the bank had held preliminary talks about a deferred prosecution agreement.

Under such an agreement, the government would suspend criminal charges against JPMorgan in exchange for fines and an acknowledgment that the bank could face charges if it misbehaves.

The newspaper said people briefed on the federal inquiry were the source of its report. It said the government has not ruled out requiring JPMorgan's national banking unit to plead guilty to a criminal violation of the Bank Secrecy Act, which mandates the reporting of suspicious activity.

A criminal charge, depending on its nature, could prompt some clients to withdraw money from JPMorgan, and at a minimum could hurt the bank's reputation.

Criminal charges are also possible against individual JPMorgan employees who did business with Madoff, the report said.

A JPMorgan spokesman declined to comment. The bank has previously said that "all of our personnel acted in good faith" in handling the Madoff accounts.

In 2011, a civil lawsuit brought against JPMorgan and other banks by Irving Picard, the trustee seeking to recover money for Madoff victims, cited internal emails in alleging that bank employees ignored "red flags" of fraud, often to win more fees and commissions.

The lawsuit was dismissed by an appellate court, which said the trustee lacked legal standing to pursue the claims.

The government investigation of JPMorgan in the Madoff matter is separate from a tentative $13 billion deal the bank is trying to conclude over its liability for faulty mortgage securities sold in the run-up to the financial crisis.

In morning trading, JPMorgan shares were down 43 cents at $52.32 on the New York Stock Exchange.

(Reporting by David Henry and Jonathan Stempel in New York; Editing by John Wallace)

[citizen k]

Jon was on fire:
http://www.buzzfeed.com/peterlauria/jpmorgan-cnbc-get-worked-over-by-the-daily-show

[CountDeMoney]

Jon was on fire:
http://www.buzzfeed.com/peterlauria/jpmorgan-cnbc-get-worked-over-by-the-daily-show

He totally tattooed Jim Cramer.  Now that was classic.