J.P. Morgan Bank Faces Criminal Charges

I've been covering JP Morgan Chase Bank for a long time, and there is just so much wrong with the way they do business! But because CEO Jamie Dimon is slippery and charismatic, they have drifted along without legal consequences even while making shady deals (The London Whale) and losing tons of money for their investors.

Let's face it - we need accountability to have closure for what happened in 2008 when the stock market crashed. And these Wall Street banks are still playing fast and loose with OUR money! As Elizabeth Warren said, "Too big to fail has become too big for trial."

Previous Posts:
May 12, 2012: The London Whale
May 18, 2012: JP Morgan Fall-Out Continues
June 14, 2012: Dimon Cozies Up to Senate Banking Committee
March 17, 2013: Senate Grills JP Morgan Bank

Now JP Morgan is under criminal investigation from both Federal and State Officials:

From Huffington Post

The Justice Department told JPMorgan in May that prosecutors had “preliminarily concluded” that the bank violated civil securities laws related to mortgage securities it packaged and sold from 2005 to 2007, the bank disclosed in a quarterly securities filing. JPMorgan has already been sued over similar practices by Eric Schneiderman, New York attorney general, and has settled similar cases brought by the Securities and Exchange Commission.
. . . JPMorgan -- once a darling in Washington -- on Wednesday disclosed a raft of expected enforcement actions that have been broadly mentioned by the bank and its chief executive and chairman, Jamie Dimon, but never before in such detail. Once finalized, the enforcement orders may further damage the bank’s already-battered reputation and lead to heightened scrutiny of its practices.
The Consumer Financial Protection Bureau is investigating JPMorgan's collection and sale of delinquent consumer credit card debt, including its use of sworn documents to pursue bad debts. Kamala Harris, California attorney general, has sued the bank over similar practices.

From Reuters

One of the major criticisms by homeowners, investors and politicians is that federal and state investigators have failed to bring criminal charges against high-level executives over lending and securitization activities that contributed to the housing and financial crises. No top executives at large Wall Street or commercial banks have been convicted of criminal charges related to the crises.
"Criminal probes of banks over MBS have been exceedingly rare," said Adam Levitin, a professor at Georgetown Law.

Senate Grills JP Morgan Bank

The saga of the JP Morgan Bank "London Whale" disaster continued last week with the release of a major Senate report and public hearings on Capital Hill.

Previous Related Posts:
Economic News Round-Up ~ The London Whale
JP Morgan Fall-Out Continues
Dimon Cozies Up to Senate Banking Committee
Economic News Round-Up ~ London Whale Leaving JP Morgan

Cnn Money

During a press briefing Thursday, Levin said the investigation of 90,000 documents, and more than 200 phone conversation and instant messages, showed how the bank "ignored limits on risk taking, dodged oversight and misinformed the public."
But the report also criticized regulators at the Office of the Comptroller of the Currency for not following up on red flags.

From AFP, via Google

Senator Carl Levin, at a hearing on JPMorgan's ill-fated "whale" trades, slammed the bank's trading operation that lost $6.2 billion over just a few months in 2012 as a "runaway train barreling through every risk limit."

"Derivative values that can't be trusted are a serious risk to our financial system," said Levin, the chairman of the Senate subcommittee on investigations.

The incident is a "reminder you just can't rely on a major bank... without a strong regulator looking over," Levin added.

A 300-page report by the subcommittee said that JPMorgan kept adding risky bets on top of earlier ones, hid losses, disregarded its own rules for risk limits, avoided oversight by its regulator and "misinformed" investors, regulators and the public.

Former and current JPMorgan executives testifying at the Senate hearing painted a picture of confusion and disbelief over the scale of the losses, which blindsided the Wall Street powerhouse in the first quarter of last year.

Ina Drew, JPMorgan's chief investment officer at the time with responsibility for the London trading operation which racked up the losses, admitted errors even as she pointed the finger at others.

"I was, and I remain, deeply disappointed and saddened that such significant losses occurred in the business unit I oversaw," said Drew, who resigned last year to take responsibility for the debacle, according to her prepared testimony.

But Drew also pointed a finger at London employees that she said misled her on the scale of the problem and "let me, and the company, down."

Economic News Round-Up

Scranton, PA, Cuts Worker Pay to Minimum Wage

Unions representing civil servants in Scranton, Pa., filed suit Tuesday after the mayor cut pay for police, firefighters, garbage collectors and other public workers to minimum wage, saying that was all the city could afford. Unions representing police, fire and public workers in the city of 76,000 filed three lawsuits after the city defied a judge's order and issued paychecks Friday that paid 398 city employees at the minimum wage of $7.25 an hour, according to the Scranton Times-Tribune.

The lawsuits against Mayor Chris Doherty include one filed in federal court under the Fair Labor Standards Act accusing the city of failing to pay wages on time and failing to pay overtime. Another lawsuit seeks to hold the mayor in contempt for violating a judges order. Yet another alleges that benefits for disabled police and firefighters were cut without a hearing.

Bloomberg Interview with Warren Buffet   He says Euro will fail without rule changes in European banking: "It can't survive with the present rules - that's what they're learning. So the question is, can seventeen countries get together in a way to essentially re-do something in some fundamental ways that require much closer cooperation when they're individual conditions are so different." On the Supreme Court Health Care Ruling: "A lot of businessmen complain about corporate taxes. Corporate taxes are less than 2% of GDP. So if you eliminated all of corporate taxes, you've got seven points against you on health care. It's the tapeworm essentially of the American economy and we've not dealt with that yet. Obamacare is a step in the right direction." Many More Quotes from Buffett on CNBC Robert Reich explains the LIBOR scandal

. . . We trust that the banking system is setting today’s rate based on its best guess about the future worth of the money. And we assume that guess is based, in turn, on the cumulative market predictions of countless lenders and borrowers all over the world about the future supply and demand for the dough. But suppose our assumption is wrong. Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them . . . . . . Sad to say, there’s reason to believe this has been going on, or something very much like it. This is what the emerging scandal over “Libor” (short for “London interbank offered rate”) is all about. Libor is the benchmark for trillions of dollars of loans worldwide – mortgage loans, small-business loans, personal loans. It’s compiled by averaging the rates at which the major banks say they borrow. So far, the scandal has been limited to Barclay’s, a big London-based bank that just paid $453 million to U.S. and British bank regulators, whose top executives have been forced to resign, and whose traders’ emails give a chilling picture of how easily they got their colleagues to rig interest rates in order to make big bucks. (Robert Diamond, Jr., the former Barclay CEO who was forced to resign, said the emails made him “physically ill” – perhaps because they so patently reveal the corruption.) But Wall Street has almost surely been involved in the same practice, including the usual suspects — JPMorgan Chase, Citigroup, and Bank of America – because every major bank participates in setting the Libor rate, and Barclay’s couldn’t have rigged it without their witting involvement. In fact, Barclay’s defense has been that every major bank was fixing Libor in the same way, and for the same reason. And Barclays is “cooperating” (i.e., giving damning evidence about other big banks) with the Justice Department and other regulators in order to avoid steeper penalties or criminal prosecutions, so the fireworks have just begun. ~ more at link~ 

London Whale Leaving JP Morgan

Bruno Iksil, the JPMorgan Chase trader known as the "London Whale" has left the bank in the wake of a trading scandal, a person familiar with the situation said. Iksil's departure had been widely expected after he became the focus of attention in the trading scandal, because of the huge positions he took in credit markets. Achilles Macris, who headed CIO in Europe, and a third colleague, Martin Javier-Artajo, were also no longer listed in the company's internal employment database as of Thursday, the Wall Street Journal reported earlier on Friday.

JP Morgan's Profits Fell 8.9%

Overall, the bank's second-quarter earnings fell 8.7% from the year-ago quarter, as the bank saw a 16% decline in revenue. J.P. Morgan has been in the spotlight since early April as its outsized, complex trades on derivatives tied to corporate bonds came under intense scrutiny. The Justice Department and the Securities and Exchange Commission are investigating the trading loss, which has played into the Washington political and policy battle over the shape of financial overhaul. Just prior to releasing its results early Friday, the bank said it would reduce its previously reported first-quarter profit by 8.5%, or $459 million, on valuations of certain positions in the chief investment office's synthetic credit portfolio. It said there was "a material weakness" in its internal control over financial reporting for the first quarter, and its internal review is continuing.

Dimon Cozies Up to Senate Banking Committee

Confident Much?

JP Morgan CEO Jamie Dimon got a warm and fuzzy welcome from the Senate Banking Committee. In fact, they rolled out the red carpet for the notorious banker who just lost billions due to the "London Whale" hedge fund debacle now being investigated by the FBI. Senators were falling all over themselves asking softball questions, while Dimon sailed calmly through it and offered only non-apology apologies while his stock rose on Wall Street.

He knew he didn't have to show any real remorse because JP Morgan was a donor to everyone in the room including the Banking Committee Chairman. They are all in bed together.
New York Post called this The Cozy and the Clueless:

“We have let a lot of people down, and we are sorry for it,” Dimon told the committee, which says it wants to know if the company is taking abnormal risk that could come back to bite taxpayers.
In other words, was JPMorgan gambling instead of simply investing when one of its employees — nicknamed the “London Whale” by Wall Street — made trades Dimon said were originally meant as portfolio insurance but turned into something else?
I think it’s telling that this guy was known as a “whale.” That’s what casino high rollers are called in the gambling world. It’s fitting that the folks who were trading against the London Whale knew that he was a gambler but that senators, who have been stalling for years on reforming regulations in the financial industry, are clueless.
Yesterday’s hearing reminded me of when Captain Renault in the movie “Casablanca” goes into Rick’s and feigns shock at what’s going on.
“I’m shocked, shocked to find that gambling is going on here,” Renault says, you’ll recall.

On Huffington Post, Bill Moyers called this "Jamie Dimon's 'Family Reunion' With the Senate Banking Committee." His point was that all of the people on both sides of the aisle had either worked for Jamie Dimon or were looking forward to working for him someday. On his PBS Show he said: "This wasn't a hearing, it was a reunion of the Gambino family." LOL

JP Morgan Fall-Out Continues

WSJ: Inside JP Morgan's Blunder

On April 30, associates who were gathered in a conference room handed Mr. Dimon summaries and analyses of the losses. But there were no details about the trades themselves. "I want to see the positions!" he barked, throwing down the papers, according to attendees. "Now! I want to see everything!"
When Mr. Dimon saw the numbers, these people say, he couldn't breathe.
. . .Mr. Dimon publicly disclosed the losses in a conference call on May 10. Afterward, he told Mr. Lee: "Maybe I can sleep tonight," according to a person familiar with the conversation.
At home with his wife that evening, he confided to her: "I missed something bad."

Reuters: FBI to Probe Morgan Scandal

A separate source familiar with the FBI probe, opened by the agency's New York office, described it as preliminary. The probe was seen in some quarters as a necessary public step, given the ongoing debate in Washington about bank regulation, and one expert said it raised the level of concern around what happened.
"The FBI looks for evidence of crimes and goes after people who it alleges are criminals. They want to send people to jail. The SEC pursues all sorts of wrongdoing, imposes fines and is half as scary as the FBI," said Erik Gordon, a professor in the law and business schools at the University of Michigan.
The bank's trading losses have also drawn the attention of the U.S. Securities and Exchange Commission and the Federal Reserve, both of which have opened inquiries.

Bloomberg: Republican Lawmakers Off-Balance over Morgan

Some are seeking investigations, with Senator Mike Crapo of Wyoming among those calling on JP Morgan Chairman and Chief Executive Officer Jamie Dimon to testify, which he has agreed to do. Senator Richard Shelby, the Banking Committee’s top Republican, said the loss emphasizes the need for capital standards for banks tougher than what the overhaul requires. Senator Lamar Alexander of Tennessee says Congress has no business getting involved.
...As Republican lawmakers split over their response to the JPMorgan loss, Democrats are unified on their message: that the trading loss underscores the need for tougher regulation of banks.
“It’s one of those things that’s clear that they were betting like you would do at the crap table in Las Vegas and they bet the wrong way,” Senate Majority Leader Harry Reid, a Nevada Democrat, said of the company’s loss this week. “That’s fine if they did it with their own money, but the problem is, the way Wall Street’s been working, is that heads they win, tails we lose.”

CNN: Dimon Will Testify to Senate

The Senate Banking Committee on Monday announced hearings to look into the trading losses from a regulatory angle. At the time, lawmakers said they planned to question regulators, not JPMorgan officials.
But on Thursday, Johnson announced he intended to invite Dimon to speak some time after the two hearings with regulators, which are scheduled for May 22 and June 6. A Banking Committee spokesman said the hearing at which Dimon will testify has not yet been scheduled.
"I encourage all of my colleagues on the Banking Committee to participate in these three critically important and timely hearings, so we can all better understand the facts," Johnson said.

CNBC: Size Matters in a Low Rate World

...there is one aspect which does not surprise rivals, instead generating a weary sigh of recognition: The investment dilemma JPMorgan found itself in in recent years. Notably, it seems one key reason why the CIO office was engaging in funky derivatives trades was that the wider climate made it so difficult for any firm to produce safe returns without taking outlandish bets. And doing this in a “hedged” way has become doubly difficult if you are a behemoth with $360 billion of cash.
Part of the problem lies with the ultra-low interest rate climate. This week the 10-year Treasury yield fell yet again, as the euro zone’s woes intensified.

Economics Round-Up ~ The London Whale

Forbes: How JP Morgan Lost $17.5 million

According to the May 12th New York Times, JPMorgan decided to make a bet on a very obscure corner of the derivatives market. And due to the scale of JPMorgan’s trading, hedge funds figured out its identity and placed bets against the bank that are continuing to make profits for them at JPMorgan’s expense.

NPR Interview with Wall Street Journal's Zuckerman: Bruno Iskil Bears Some Blame for Morgan's Fall

GREGORY ZUCKERMAN:His name is Bruno Iksil. He's an interesting guy. He lives in Paris, but he commutes to London. Wears a lot of black. Informal dresser. He comes home, (unintelligible) from his home in Paris on Fridays, the rest of the week is in London. And he is one of a group - it's a group called the CIO group, and frankly, when I started reporting on this, analysts and investors didn't really know much about this group. And the more I uncovered it the more fascinating it became. They're a group that ostensibly hedges the positions of the banks. So the bank does all these loans and other kinds of things, and the group is charged with protecting and hedging the bank by doing various trades. But it also is charged with making money. So it does things that can potentially be risky at the same time.

New Statesman: JP Morgan Hedge-Bet Unbelievably Ineffective

The bank JPMorgan announced last night that it had lost $2bn in trading on credit derivitives, through what chief executive Jamie Dimon called "errors, sloppiness, and bad judgment" and a "bad strategy, badly executed and poorly monitored".
The loss was made by the bank's chief investment office, which is under the aegis of Bruno Iskil, who earned the nickname "London Whale" earlier this year following accusations that his oversized bets on credit derivatives, one said to be as large as $100bn, were skewing the market.

Guardian UK: London Whale Blows Hole in Bank's Value

A graduate in engineering from the École Centrale in Paris 20 years ago, Iksil had become so well known in the opaque $10tn market for credit default swaps – a complex type of insurance product – that he was nicknamed the "London Whale" and also known as Voldemort, after Harry Potter's nemesis.
Iksil is thought to be one of the highest-paid bankers in London and his New York-based boss, Ina Drew, whose pay has to be published, received $14m last year.
. . . Reports of Iksil's risky transactions surfaced in the US a month ago, but were dismissed by Dimon as "a complete tempest in a teapot". But in a hastily arranged conference call to investors on Thursday night he said: "The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought. There were many errors, sloppiness and bad judgment."

The Hill: Senator Corker (R-TN) Calls for Hearings on JP Morgan Chase

"I believe that we need to know the answers to the following questions: 1. Are we confident that taxpayers are fully protected from losses at major financial institutions?," Corker continues in the letter. "Were these bona fide hedging transactions, or were these poorly managed proprietary trades? And what, precisely, is the distinction?"

AP: World Stocks Lower on JP Morgan Loss

"This has permeated to the wider market as investors assess the possible systemic risk, adding another layer of caution to the fragile trading environment," said Jordan Lambert, a trader at Spreadex.
"When such shocks occur, it is wise to err on the side of caution and consider whether it is a possible 'tip of the iceberg' scenario, especially when one contemplates the interconnectedness of the banking system," he said.