JPMorgan meets officials on settling
JPMORGAN Chase CEO Jamie Dimon yesterday met the US attorney-general amid intensifying talks of a possible $11bn settlement to end probes of alleged past abuses in residential mortgage-backed securities.
Mr Dimon met attorneygeneral Eric Holder in Washington for the settlement discussions, people familiar with the meeting said yesterday.
The sum could include $7bn in cash and $4bn for consumers, said the sources. The talks were “fluid” and the $11bn amount could change, they said. The talks included the US department of justice, the Securities and Exchange Commission, the department of housing and urban development and the New York state attorney-general.
JPMorgan is hoping to ease some of the pressure from regulators for months. The bank sidestepped the worst losses in the 2008 financial crisis, but it has looked less impressive since May last year, when it said it was losing money on derivatives bets that became known as the “London Whale” trades.
Those wagers cost the bank more than $6.2bn before taxes, and subsequent probes into how the losses happened revealed Mr Dimon had a dysfunctional relationship with regulators.
The London Whale trades were just one of many missteps that have drawn regulatory scrutiny. The largest US bank has disclosed more than a dozen probes globally in recent filings, including an investigation from the US department of justice in California that preliminarily concluded that JPMorgan Chase had violated
For the bank, the biggest in the US by assets, the sums (of a possible $11bn) being discussed are painful but manageable
securities laws in selling subprime mortgage bonds.
Justice department l awyers 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 justice department officials in California told the bank that it was preparing to file a lawsuit.
US President Barack Obama set up a working group in January last year to investigate misconduct in mortgage securities that contributed to the financial crisis.
For the bank, the biggest in the US by assets, the sums being discussed are painful but manageable. The company reported net income of $21.3bn 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 $209bn.
JPMorgan generates so much excess capital from its operations that its board, with approval of regulators, plans to spend $6bn to buy back stock in the 12 months to the end of next March. The buyback is conditional on the bank improving the way it calculates its capital needs.
Still, the probes 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 $5bn a year on legal costs over the past two years, largely because of the London Whale incident and the 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, Mr 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 last year — three-quarters of them this year — and increased spending on those efforts by about $1bn.