Who Really Wins if JPMorgan Pays $13 Billion?
Looks like Jamie Dimon is moving ahead. Photographer: Joshua Prezant/Bloomberg
Memories of the fictional sports announcer Biff Burns came to mind this weekend amid all of the anonymously attributed news reports that the Justice Department had reached a tentative agreement with JPMorgan Chase & Co. worth $13 billion.
Burns was part of the comedian ’s stable of characters. His shtick was to report the day’s scores while omitting basic information. (“Here’s a partial score: Pittsburgh 37.” Or, “Quickly now the basketball scores: 110 to 102, 125 to 113, 131 to 127.”) Likewise, it has been widely reported that the $13 billion settlement would be the largest ever by the government with a single company. Yet we still don’t have enough facts to know which side would emerge the real winner.
It probably would be a stretch to give the Justice Department credit for the full $13 billion. The matters JPMorgan would be resolving include a 2011 lawsuit by the conservator for Fannie Mae and Freddie Mac, as well as a separate by New York Attorney General Eric Schneiderman. It also isn’t clear how much of the $13 billion would be paid in cash. (JPMorgan had $28.9 billion of pretax income last year.)
About $4 billion would be earmarked for consumer relief, details of which are fuzzy. For all we know this could take the form of coupons, discounts or other soft benefits, which might not cost JPMorgan anywhere near $4 billion in the end. This month the Association of Mortgage Investors sent U.S. Attorney General Eric Holder a to complain that some of the government’s settlements with large banks “have resulted in the responsible party shifting a portion of the settlement costs” to investors in residential mortgage-backed securities. If the government lets JPMorgan finance breaks for homeowners with other people’s money rather than its own, that isn’t much punishment.
Another $4 billion would go toward resolving the related to Fannie and Freddie. For the Justice Department to include this accord in its total settlement figure would be akin to the rooster taking credit for the dawn. The suit isn’t a law-enforcement matter. It’s a business dispute.
Back in 2011 the Federal Housing Finance Agency, which is the conservator for Fannie and Freddie, hired the law firm to litigate the two companies’ mortgage-bond claims against JPMorgan and other large banks. The agency’s lawsuit covers $33 billion of residential mortgage-backed securities issued from 2005 to 2007 that Fannie and Freddie brought from JPMorgan and other companies it later acquired, including Washington Mutual and Bear Stearns.
In court papers, Quinn Emanuel attorneys have said Fannie and Freddie lost billions of dollars on those bonds, without specifying more precisely. Perhaps $4 billion (before attorneys’ fees) is a good deal for Fannie and Freddie. Or maybe it’s an even better bargain for JPMorgan, at about 12 percent of the bonds’ face value. It’s hard to say.
The settlement wouldn’t end the Justice Department’s criminal investigation of JPMorgan. The bank was told it won’t receive a waiver from prosecution, and would have to cooperate with the Justice Department’s probes of individuals still under investigation.
This brings me to another quirk in the Fannie-Freddie portion of the settlement. The Federal Housing Finance Agency’s amended complaint against JPMorgan also named 32 individuals as defendants, all of whom worked for JPMorgan or one of the companies it later acquired. If the agency settles the case with JPMorgan and collects its $4 billion on behalf of Fannie and Freddie, it wouldn’t make much sense financially to continue pressing claims against the individuals; whatever sums it could collect from them would be immaterial by comparison.
It isn’t clear if any of those people are under investigation by the Justice Department. JPMorgan hasn’t disclosed which mortgage bonds are the focus of the criminal probe or whether they include any of the bonds sold to Fannie or Freddie. That said, the housing-finance agency did allege that JPMorgan and the individual defendants violated federal securities laws. Unveiling a massive settlement without holding any individuals responsible would be unsatisfying. By now, though, the public has come to expect such outcomes as the norm.
All of this is a long way of saying there is still much we don’t know about the Justice Department’s investigations and how the various settlements will turn out. JPMorgan wants peace with the government concerning all of its mortgage-bond woes. The Justice Department wants to show it’s capable of holding a large bank accountable for violations of the law. Yet it's unlikely either side won a total victory -- the question is whether the deal will deter misconduct by banks in the future.
Major JPMorgan Chase settlements and fines
Past fines and settlements paid by JPMorgan Chase since mid-2010.
Here's a list of what the fines and settlements have cost JPMorgan Chase to date in the fallout of the 2008 financial crisis, not including the tentative settlement reached with the Justice Department Saturday of $13 billion:
Oct. 2013: $100 million: Agreed to pay a $100 million fine and admit to reckless conduct and market manipulation in connection with its 2012 "London whale" trading debacle, the Commodity Futures Trading Commission announced.
Sept. 2013: $920 million – Paid to the Federal Reserve, Securities and Exchange Commission, Office of Comptroller of the Currency and the United Kingdom's Financial Conduct Authority to settle claims about management and oversight of traders involved in the "London Whale" disaster. The bank also admitted wrongdoing in the trading episode, which caused roughly $6 billion in losses.
Sept. 2013: $389 million – A total of $80 million in fines paid plus $309 million in refunds after regulators charged that more than 2.1 consumers were harmed by unfair billing practices that charged for credit monitoring services they did not receive. The settlement also covered allegations that consumers were harmed by mistakes in thousands of debt-collection lawsuits.
July 2013: $410 million – Penalties and repayments related to Federal Energy Regulatory Commission findings of alleged bidding manipulation of California and Midwest electricity markets from Sept. 2010 through Nov. 2012.
January 2013 and Feb. 2012: $1.8 billion – Two agreements in which JPMorgan joined other major banks in a nationwide settlement over allegations the institutions improperly carried out home foreclosures after the housing market crisis. JPMorgan also agreed to $3.7 billion for financially troubled homeowners and roughly $540 million in refinancing.
November 2012: $296.9 million – Paid to settle SEC allegations that the bank misstated information about the delinquency status of mortgages that served as financial collateral for a securities offering underwritten by the bank. JPMorgan received more than $2.7 million in fees on the offering, while investors sustained at least $37 million in losses.
August 2012: $1.2 billion – The bank's share of a broad settlement resolving a class-action lawsuits that alleged JPMorgan, other banks, Visa and Mastercard improperly conspired to set the price of credit and debit card interchange fees.
April 2012: $20 million – Paid to settle Commodity Futures Trading Commission allegations that the bank improperly extended credit to Lehman Brothers based in part on customer funds that were required to be kept separate.
August 2011: $88.3 million – Fines settling allegations by the Treasury Department's Office of Foreign Assets Control that the bank improperly processed transactions involving Cuba, Iran and Sudan.
July 2011: $228 million – Settling SEC allegations that the bank fraudulently rigged at least 93 municipal bond transactions in 31 states, generating millions of dollars in ill-gotten gains.
June 2011: $153.6 million – Penalties to the SEC in settling allegations that the bank misled investors about a collateralized debt obligation it marketed without telling them a hedge fund chosen the underlying collateral and made investment bets it would fail.
April 2011: $56 million – Paid to settle claims the bank overcharged active-duty service members on their mortgages. The agreement included $27 million in cash to approximately 6,000 military personnel, lower interest rates on soldiers' home loans and the return of homes taken in improper foreclosures.
June 2010: $48.6 million – Fine paid to settle allegations by Great Britain's financial regulator that the bank's London unit failed to maintain required separation between clients' accounts and JPMorgan funds.
— Kevin McCoy, USA TODAY. Sources: News releases by regulatory agencies, bank regulatory filings and USA TODAY research.
工商時報 ／綜合外電報導 2013年10月21日 04:09