Remember those “Too Big to Fail” Banks (the Too Bigs) that the Government bailed-out in late 2008? Those are the ones that the Bush Administration gave Billions of Dollars to, didn’t place any constraints on their activities or reduce the outrageous salaries and bonuses of the senior executives. And, the Too Bigs have grown even larger–and more dangerous–ever since.
JPMorgan Chase seemed to have escaped many of the problems that hindered its peers, such as Bank of America, Citibank and Wachovia (now part of Wells Fargo). Well, the linked article, from the NY Times “DealBook” shows that, in fact, the Emperor (A/K/A/ Jamie Dimon) has no clothes: http://dealbook.nytimes.com/2013/09/23/jpmorgans-legal-hurdles-expected-to-multiply/?pagewanted=print. In essence, the past errors or omissions of JPM are coming home to roost
Recently, it was reported that JPM agreed to fines (to regulators in the U.S. and U.K.) of $920 Million for the “London Whale” trading scandal and, additionally, $80 Million for charging credit card customers for identity theft products they never delivered. On the London Whale, the Bank even acknowledged culpability. But, the story goes on.
Separately, Morgan Chase is being investigated by state regulators in both California and Philadelphia for discrepancies in its sale of mortgage-backed securities. Also, the Commodities Futures Trading Corp. argued that the London (Whale) amount of financial contracts (known as derivatives) was large enough to manipulate the Market. The CFTC seeks a settlement of a $100 Million fine and an acknowledgement of wrongdoing from the Bank.
Oh, and let’s not forget Chase’s problems in the Energy Sector. Just after JPM paid $410 Million to the Energy Regulator, it allegedly began to devise “manipulative schemes” to transform money-losing power plants into powerful profit centers.
Lastly, JP Morgan Chase has also been in consultation with the Department of Housing and Urban Development, about a settlement for all of the various charges with regard to its Mortgage Operations (origination and servicing). When HUD revealed the lump-sum settlement number that it had in mind, $20 Billion, JPM immediately broke-off negotiations.
So, who bears the real burden for these potentially illegal or unethical practices? When a corporation’s good name comes into question or regulatory scrutiny, the value of Shareholders investments can drop. Fines are mostly absorbed through the Equity Capital–further reducing the Shareholder Value. But, the corporate executives don’t seem to have seen any drop in their Total Compensation which, for the most part, has continued to grow. Kind of like: Heads they win, Tails you lose”.
NOTE: In a separate Blog Post, I will consider whether the same person can satisfactorily serve as both the CEO and the Chairman.