Possible JPMorgan settlement: Painful, but manageable

The bank, which weathered the financial crisis relatively well, may be facing an $11 billion settlement, sources say. Several recent missteps, including the London whale debacle, have drawn regulatory scrutiny. 

|
AP Photo/Kathy Willens
A man pauses outside one of two JPMorgan Chase & Co. buildings on Park Avenue in midtown Manhattan, last week in New York. Sources report the bank may be nearing a sizable billion settlement.

JPMorgan Chase & Co is in talks with government officials to settle federal and state mortgage probes for $11 billion, two people familiar with the matter said on Wednesday.

The sum could include $7 billion in cash and $4 billion for consumers, said the sources, who asked not to be identified because the negotiations are private.

The talks are fluid and the $11 billion amount could change, the people familiar with the matter said. The discussions include the U.S. Department of Justice, the Securities and Exchange Commission, the U.S. Department of Housing and Urban Development and the New York State Attorney General, the sources said.

JPMorgan is hoping to ease some of the pressure that regulators have been putting on the bank for months. The bank sidestepped the worst losses in the financial crisis, but it has looked less smart since May 2012, when it said it was losing money on derivatives bets that became known as the "London Whale" trades.

Those wagers ended up costing the bank more than $6.2 billion before taxes, and subsequent probes into how the losses happened revealed that the bank's outspoken chief executive officer, Jamie Dimon, had a dysfunctional relationship with regulators.

But the London whale trades were just one of many missteps that has drawn regulatory scrutiny. The largest U.S. bank has disclosed more than a dozen probes globally in recent filings, including an investigation from the U.S. Department of Justice in California that preliminarily concluded that JPMorgan violated securities laws in selling subprime mortgage bonds.

U.S. Department of Justice lawyers from other areas of the country and state authorities have been investigating JPMorgan's liability for mortgage securities sold by two other companies it acquired during the financial crisis, Bear Stearns and Washington Mutual.

The talks to reach a global settlement on the mortgage issues heated up this week after U.S. Department of Justice officials in California told the bank that it was preparing to file a lawsuit.

The New York prosecutor's office is participating in the talks because it is part of a working group formed by President Barack Obama in January 2012 to investigate misconduct in mortgage securities that contributed to the financial crisis.

For the bank, the biggest in the United States by assets, the sums being discussed are painful but manageable. The company reported net income of $21.3 billion last year and analysts have estimated that profits this year will be higher. At the end of June, the bank's net worth, as measured by the accounting value of its assets minus liabilities, was about $209 billion.

Taking a toll 

JPMorgan generates so much excess capital from its operations that its board, with approval of regulators, authorized spending $6 billion to buy back stock in the 12 months through next March. That buyback was conditioned on the bank improving the way it calculates its capital needs.

Still, the investigations have taken a toll. Before the London Whale debacle, regulators had given the bank approval to buy back stock at twice the current rate.

The bank has spent about $5 billion a year on legal costs the past two years, largely because of the London Whale debacle and because of mishandling of mortgage loans and mortgage securities.

After two government regulators in January issued public orders that the bank improve its risk and operational controls, as well as its anti-money laundering and Bank Secrecy Act processes, CEO Dimon said the bank had postponed projects that would have built its business so that it could put its house in order.

JPMorgan has added 4,000 staff to its control groups since 2012 - three quarters of them this year - and increased spending on those efforts by about $1 billion. The bank's control group includes risk, compliance, legal, finance, technology, oversight and control and audit functions. Dimon pointed out the efforts in a memo to employees last week in which he warned that the company was about to face more bad publicity. 

The bank's chief financial officer said earlier this month that many types of loans on its books are performing better, but mounting legal costs will prevent those gains from boosting profits.

JPMorgan shares were up 2.7 percent at the close of New York Stock Exchange trading on Wednesday.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Possible JPMorgan settlement: Painful, but manageable
Read this article in
https://www.csmonitor.com/Business/Latest-News-Wires/2013/0926/Possible-JPMorgan-settlement-Painful-but-manageable
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe