In today’s newspaper, I read that JPMorgan Chase has agreed to a settlement. paying $5.1 Billion (combined) to Fannie Mae and Freddie Mac. These are the two huge GSEs (Government-Sponsored Enterprises) that facilitate the operation of the home mortgage market in the U. S. Apparently, JPM is alleged to have misled the two companies in selling it a total of $33 Billion of mortgage-backed securities prior to the Economy’s collapse several years ago.
That huge sale is second only to what Bank of America sold to Fannie and Freddie between 2005 and 2007. This $5.1 Billion settlement is in addition to the tentative $13 Billion which the Bank is in the process of finalizing, with the Justice Department, due to improprieties in mortgage-backed securities that helped precipitate the recent Financial Crises. In fairness, the total includes mortgage-backed securities that were packaged and sold by Bear Stearns and Washington Mutual, both of which Morgan Chase purchased when they failed in 2008.
Now, before we write these fines and penalties off as errors created by now defunct companies, keep in mind that both were purchased by JPM, in Government-negotiated transactions, and at fire-sale prices. The Government just wanted them closed, so it could narrow the overall Financial Crisis at hand.
Earlier this year, JPMorgan Chase lost $6 Billion in risky trading schemes at its London office. For that, it was fined $920 Million by a group of U. S. and British regulators. That is in addition to another $100 Million for reckless trading in London. The multitude of alleged offenses seem to comprise a laundry list of things–some proved, and some not–by the Largest U. S. Bank, which had always been considered one of the safest.
From what I understand, the CEO and Chairman, Jaime Dimon tends to be a detail-oriented person, as most executives who occupy the corner suites are. Claims that he was “out of the office” when a particular problem occurred, at least to me, don’t make sense. Good executives, especially at a very large corporation, spread across many countries in various continents, simply must delegate authority.
Remember also that the “Too Big to Fail” Banks (Too Bigs) also operate in a multitude of languages, legal jurisdictions, time zones and industries. Now, that’s where a corporation’s various controls should come into play. Also, doesn’t the selection of capable lieutenants also reflect on the leader’s management capabilities?
When you start looking at all these Billions and Billions of Dollars in fines, not to mention the few for measly Hundreds of Millions, its good to keep the size of JPMorgan Chase in perspective. It’s Total Revenue for 2012 was $106.2 Billion, and its Net Income was $21.3 Billion. But, hey, the fines come out of the Corporation–in essence, the Shareholders pockets. So, the responsible officers are not sued personally, and the Senior Executives are not held responsible for their lack of oversight either.
During Senate Finance Committee hearings, Senator Elizabeth Warren (D-MA) questioned whether Too Big to Fail, also meant Too Big for Trial, and also to Jail. Wall Street’s considerable lobbying efforts have kept both Congress and Regulators off the Banks’ backs. But, wouldn’t the next question rightly follow: are they also Too Big to Manage? If so, then they are truly Too Big NOT to Break-up! Down-size ‘em.