Thursday, September 19, 2013

Too Big To Fail Giant JPMorgan Chase Admits to Breaking the Law...Sorta

You might recall last year when JPMorgan Chase caught everybody's attention after it reportedly lost $2 Billion dollars on a single trade (subsequent reports noted that the loss was actually $6.2 Billion).  This became known as the "London Whale" scandal named after Chase's London-based trader Bruno Iksil who made huge bets in the derivatives market on Chase's behalf.  I'll spare you the details, but long story short Chase's "London Whale" began placing risky bets on a massive scale that caught the attention of smart hedge fund managers like Boaz Weinstein who, in turn, began betting against JPMorgan Chase.  In the end, Weinstein won.  Chase lost.  Big time.

Normally this wouldn't be a problem. After all, Wall Street banks win and lose money all the time on massive levels.  But what made this story so significant is that this was the first time a loss on this scale had happened with the public's money after the great recession of 2008. And when I say the public's money, I literally mean the money that you and I deposit into our Chase bank accounts every 2 weeks.  Chase took that money, placed it on the roulette wheel, and lost it.  Hence, the significance of this loss was much bigger than the nearly $6 Billion dollars that JPMorgan Chase lost through its failed credit default swaps.  No.  This loss symbolized our worst fears: Wall Street's "Too Big To Fail" banks have not learned their lesson from the 2008 recession.  Which means that, at any moment, they could (and in all likelihood probably will) cause the U.S. economy to fall off the cliff again. 

Per HuffPo:

In what amounts to a relatively stirring triumph of justice on Wall Street, the Securities and Exchange Commission has convinced JPMorgan Chase, the biggest U.S. bank by assets, to admit that it broke federal securities laws in its handling of the $6.2 billion "London Whale" trading debacle.
"JPMorgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses," George Canellos, co-director of the SEC’s enforcement division, said in a press release announcing the bank's settlement with the SEC. "While grappling with how to fix its internal control breakdowns, JPMorgan's senior management broke a cardinal rule of corporate governance and deprived its board of critical information it needed to fully assess the company's problems and determine whether accurate and reliable information was being disclosed to investors and regulators."
"We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them," Jamie Dimon said in a separate statement.
Which is true, depending on what Dimon means by "from the start." When the London Whale story first broke in the spring of 2012, Dimon infamously dismissed it as a "tempest in a teapot." He has since repeatedly admitted that the bank erred, although this is the first time it has admitted breaking laws.
JPMorgan also agreed to pay $920 million to the SEC and other agencies to settle various London Whale charges. That is quite a lot of money to you and me, more than twice the size of the current Powerball jackpot
But it amounts to just 14 percent of the bank's quarterly profit of $6.5 billion.
To put it another way, these fines amount to less than 13 days' profit for the bank, or about three days and eight hours' worth of revenue. So the money is really just a slap on the wrist. It's the admission of wrongdoing that matters.
Does that admission have any practical impact? Maybe. It could open the bank up to being sued. More than it already is, I mean. It may not help the bank with the Justice Department and the Commodity Futures Trading Commission, which still have their own criminal and civil probes going. Then again, the bank's cooperation could win it favor at those agencies, too.
But at least this settlement does seem to end an annoying practice of recent years, of letting banks and bankers walk free with fines while pretending they did nothing wrong.

Your Thoughts?
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