Monthly Archives: March 2013

JPMorgan Chase Faces Full-Court Press of Federal Investigations


As the nation’s strongest bank, JPMorgan Chase used to be known for carrying special sway with regulators. Now it increasingly finds itself in the cross hairs of federal authorities.

At least two board members are worried about the mounting problems, and some top executives fear that the bank’s relationships in Washington have frayed as JPMorgan becomes a focus of federal investigations.

In a previously undisclosed case, prosecutors are examining whether JPMorgan failed to fully alert authorities to suspicions about Bernard L. Madoff, according to several people with direct knowledge of the matter. And nearly a year after reporting a multibillion-dollar trading loss, JPMorgan is facing a criminal inquiry over whether it lied to investors and regulators about the risky wagers, a case that could accelerate when the Federal Bureau of Investigation and other authorities interview top JPMorgan executives in coming weeks.

All told, at least eight federal agencies are investigating the bank, including theFederal Deposit Insurance Corporation, the Commodity Futures Trading Commission and the Securities and Exchange Commission. Federal prosecutors and the F.B.I. in New York are also examining potential wrongdoing at JPMorgan.

A recent misstep points to the growing friction between JPMorgan and regulators as well as to the concerns within the bank. JPMorgan misstated how the bank may have harmed more than 5,000 homeowners in foreclosure, according to several people briefed on the matter. The bank’s primary regulator, the Office of the Comptroller of the Currency, is expected to collect a cash payment from the bank to remedy the flawed review of loans, these people say.

The bank acknowledges its broad regulatory challenges. “We get it, and we are dealing aggressively with these issues,” said Joe Evangelisti, a JPMorgan spokesman.

The mortgage errors, while by themselves relatively minor, have heightened concerns within JPMorgan because they come on top of the other investigations. The increased scrutiny presents a challenge for the bank and its influential chief executive, Jamie Dimon, who was widely praised for steering JPMorgan through the 2008 financial crisis, leaving it in far better shape than its rivals. Among some executives at the bank, the worry is that the unwanted attention will undercut Mr. Dimon’s authority in Washington.

“Jamie and other executives feel terrible that the bank’s self-inflicted mistakes have put regulators in an awkward position,” Mr. Evangelisti said. He added, “We are wholly to blame for our errors and are fully cooperating with all authorities to make things right.”

Mr. Dimon has already testified before Congress and apologized for the trading losses. In response to last year’s trading blowup, the bank has also worked to root out the problems, shuffled its top executives, bolstered its risk controls and brought in a new head of compliance.

The bank’s board, which halved Mr. Dimon’s compensation in January, recently reiterated its support for him as both chairman and chief executive. JPMorgan, whose shares have soared in recent months, has recorded record profits for the last three years.

But as JPMorgan seeks to address its legal woes and restore its credibility in Washington, the bungled review of troubled mortgages could present a setback for the bank. The problems stem from January, when JPMorgan and other big banks agreed to a multibillion-dollar settlement over foreclosure abuses. As part of the pact, the bank agreed to comb through each loan file to spot potential errors, a process that the regulators will use to help determine the size of the payouts to homeowners.

While assessing 880,000 mortgages, JPMorgan overstated the potential harm for more than 5,000 loans, the people familiar with the matter said. The mistakes were not deliberate, according to a person with direct knowledge of the review, who also noted that the extent of the problem was small and that other banks were encountering their own issues with the review.

To ensure those errors didn’t cheat homeowners out of relief, JPMorgan offered additional compensation for borrowers, according to one person familiar with the matter. Still, the comptroller, which is growing impatient with JPMorgan’s mistakes, could also fine the bank, another person said.

Tensions between JPMorgan and its primary regulator were highlighted in a recent Senate report that examined the $6.2 billion trading loss. The report, by the Senate Permanent Subcommittee on Investigations, portrayed a somewhat defiant stance by Mr. Dimon, showing how during a brief period in August 2011 the chief executive stopped providing regulators with profit-and-loss reports about the investment bank.

Although the bank says Mr. Dimon was merely concerned about a security breach, the report says he took an adversarial tone with regulators, pushing them to explain why they needed that level of information. Mr. Dimon’s approach seemed to influence other executives, including one employee who once screamed at examiners and called them “stupid.”

Those episodes, combined with the current investigations, are costing the bank some of its influence in Washington, according to government officials who would speak only anonymously. The legal problems also pose a test for Stephen M. Cutler, the bank’s general counsel, who is advocating for the bank to take a respectful approach with regulators.

In April, according to people briefed on the matter, senior executives are expected to meet with investigators who are examining the trading loss. A handful of executives have already met with authorities, but the second round will include Mr. Dimon. While he is not suspected of any wrongdoing, the officials hope Mr. Dimon will help build a case against traders in London suspected of lowballing their losses.

The investigators will also seek information about whether some top bank executives misled investors and regulators about the severity of the losses. Even as losses mounted last year, the bank did not publicly disclose the problem for months. The bank has said that “senior management acted in good faith and never had any intent to mislead anyone.”

But the S.E.C. is also examining such disclosures. And under the Dodd-Frank regulatory law, the F.D.I.C. is investigating the trading loss, according to people briefed on the matter.

The S.E.C., F.D.I.C., Comptroller’s office and F.B.I. all declined to comment.

JPMorgan has separately come under fire for lax controls against money-laundering. In January, the comptroller hit JPMorgan with a cease-and-desist order for failures that threatened to allow tainted money to move through the bank’s vast network.

Mr. Evangelisti, JPMorgan’s spokesman, has said the bank has “been working hard to fully remediate the issues identified.”

Still, federal prosecutors in Manhattan are examining JPMorgan’s actions in the Madoff case, suspecting the bank may have violated a federal law that requires banks to alert authorities to suspicious transactions. The comptroller’s office is investigating similar issues.

“We believe that the personnel who dealt with the Madoff issue acted in good faith in seeking to comply with all anti-money-laundering and regulatory obligations,” Mr. Evangelisti said.

The federal investigation echoes claims in a 2010 lawsuit against the bank brought by Irving H. Picard, the bankruptcy trustee gathering assets for Mr. Madoff’s victims.

The suit cited internal JPMorgan e-mails sent 18 months before Mr. Madoff’s arrest, in which one employee acknowledged that a bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”

House, Senate differ in approach to foreclosure settlement money

Gray Rohrer, 03/27/2013 - 03:10 PM

Members of the Senate Appropriations Subcommittee on Transportation and Economic Development unveiled their plan to spend $200 million from a multi-state foreclosure fraud settlement on Wednesday, revealing a significant departure for the House.

The Senate wants to use $70 million for the State Housing Initiatives Partnership program, which provides grants to local governments to pay for affordable housing and its refurbishment and maintenance. The House’s plan does not include any money for SHIP, which also helps low-income households purchase existing homes and provides housing counseling.

The Senate’s SHIP plan would be tailored to special needs applicants, with 20 percent of the money going to aid disabled people. The upper chamber also gives $65 million to the State Apartment Incentive Loan program, with 15 percent of those funds going to units designed for disabled residents. The House provides $50 million to SAIL, with half going to reduced rents and low interest loans for low income residents and the other half going to qualified elderly applicants.

The House plan would give $45 million to the Florida Housing Finance Corp. (which administers the SHIP and SAIL programs) for down payment assistance for teachers, assistant state attorneys and public defenders, veterans and military service members and medical professionals. The Senate does not include down payment assistance in its plan.

Both chambers want to spend part of the settlement money to reduce the foreclosure backlog in Florida, where it takes more than 800 days for the average foreclosure to make it through the court system. The Senate gives $25 million over two years to the State Court System to pay for retired judges to help rip through backlogged cases. The House gives $13 million for one year. Clerks of the court would receive $15 million over two years in the Senate proposal, $6.7 million for one year from the House.

Legal aid programs providing counseling to homeowners in foreclosure or at risk of foreclosure would get $10 million from the Senate, $5 million from the House.

The House also gives $35 million to the nonprofit Habitat for Humanity to construct new homes and rehabilitate existing homes for low income families and provides $20 million to theDepartment of Children and Families to increase capacity and expand services for domestic violence centers and emergency shelters. The Florida Prepaid Foundation gets $15 million in the House plan to add a two-year dorm option to prepaid tuition plans. None of those provisions are included in the Senate plan.

The settlement money is part of a $25 billion multi-state settlement with five of the nation’s largest banks -- JP Morgan, Bank of America, Wells Fargo, Citigroup and Ally Financial -- for suspicious foreclosure practices after reports surfaced in October 2010 of law firms churning out fraudulent or shoddy documents proving ownership of a mortgage.

Florida’s take in the settlement was $8.4 billion, $7.6 billion of which went to loan modifications, principal reductions or loss reductions from short sales. The rest went to relief for homeowners with underwater loans -- those owing more on their home than it is worth -- direct payments to those who lost their home in defective foreclosure cases. The state received a $334 million in a direct payment, $74 million of which went to general revenue as a civil penalty and $60 million of which has already been disbursed by lawmakers for FHFC services, legal aid and additional court resources.

The remaining $200 million is to be appropriated by lawmakers this year. Attorney General Pam Bondi, who was part of settlement negotiations, wrangled with legislative leaders last year over how to spend the money. In a statement, she said she will continue to work with both chambers.

"I thank the Senate Subcommittee for their hard work on this good legislation, and I look forward to working with the House and Senate on a final product that uses the mortgage settlement funds to help Florida’s homeowners and to ameliorate the foreclosure crisis in our state,” Bondi said.

The House plan is filed as HB 7111, but hasn’t received committee references, and the Senate version is a proposed committee bill that has yet to be filed.

Foreclosure Settlement Money Plans
House Senate
Down payment assistance $45 million --
SHIP program -- $70 million
SAIL program $50 million $65 million
Florida Prepaid Foundation dorm plan $15 million --
Homeless housing program -- $10 million
Legal aid $5 million $10 million
State Court System (total) $18.3 million *$25 million
Clerks of Court $6.7 million *$15 million
Domestic violence program expansion $20 million --
Habitat for Humanity $35 million --
Administrative costs $3 million $3 million
Attorney General marketing campaign $2 million $2 million
Total $200 million $200 million
*Money would be disbursed over two years


Reporter Gray Rohrer can be reached at

Cyprus lawmakers reject bank tax; bailout in disarray

By Michele Kambas and Karolina Tagaris

NICOSIA (Reuters) - Cyprus overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout on Tuesday, throwing international efforts to rescue the latest casualty of the euro zone debt crisis into disarray.

The vote in the tiny legislature was a stunning setback for the 17-nation currency bloc, angering European partners and raising fears the crisis could spread; lawmakers in Greece, Portugal, Ireland, Spain and Italy have all accepted austerity measures over the last three years to secure European aid.

With hundreds of demonstrators outside the parliament chanting "They're drinking our blood", the ruling party abstained and 36 other lawmakers voted unanimously to reject the bill, bringing the Mediterranean island, one of the smallest European states, to the brink of financial meltdown.

Finance Minister Michael Sarris had already headed to Moscow, amid speculation Russia could offer assistance given the high level of Russian deposits in Cypriot banks. President Nicos Anastasiades, barely a month in office, spoke by phone with Russian President Vladimir Putin after the vote.

Anastasiades was due to meet party leaders at 9 a.m. (0700 GMT) on Wednesday to explore a way forward.

"The voice of the people was heard," 65-year-old pensioner Andreas Miltiadou said among a crowd of demonstrators jubilant after the vote.

EU countries had warned they would withhold 10 billion euros ($13 billion) in bailout loans unless depositors in Cyprus, including small savers, shared the cost of the rescue, an unprecedented step in the stubborn debt crisis.

The European Central Bank had threatened to end emergency lending assistance for teetering Cypriot banks, which were hard hit by the financial crisis in neighboring Greece.

The island's partners barely disguised their anger.

Euro zone paymaster Germany, facing an election this year and increasingly frustrated with the mounting cost of bailing out its southern partners, said Cyprus had no one to blame but itself for the gravity of the situation.


"Cyprus requested an aid program," German Finance Minister Wolfgang Schaeuble told ZDF television. "For an aid program we need a calculable way for Cyprus to be able to return to the financial markets. For that, Cyprus's debts are too high."

Dutch Finance Minister Jeroen Dijsselbloem, who chairs the Eurogroup of finance ministers, said the bailout offer still stood providing the conditions were met. European Central Bank Governing Council member Ewald Nowotny called on Cyprus to show "discipline and the readiness to act rationally."

But it was Europe's demand at the weekend that Cyprus break with previous EU practice and impose a levy on bank accounts that led outraged Cypriots to empty bank cash machines and unsettled financial markets.

An important issue in negotiations has been the high level of deposits held in the island's banks by non-EU citizens and companies, notably from Russia, where Cyprus has established itself as a major provider of offshore financial services.


The EU and International Monetary Fund are demanding Cyprus raise 5.8 billion euros from bank depositors to secure the bailout it needs to rescue its financial sector. They say a bailout of more than 10 billion euros would tip Cyprus's debt level into unmanageable territory for its 1.1 million people.

But lawmakers said the levy on deposits crossed a red line.

"You can't take a 10,000-metre jump without a parachute. And that's what they're asking of us," said George Perdikis of the Greens Party.

International market reaction has been muted so far but that might change.

While Brussels has emphasized that the measure was a one-off for a country that accounts for just 0.2 percent of European output, fears have grown that savers in other, larger European countries might be spurred to withdraw funds.

Dijsselbloem, the Eurogroup chair, said there would be no need to impose a levy in any of the 16 other euro countries.

Some Cypriots hope they can get aid from Russia, which has bailed out Cyprus in the past. Many Russians keep their money in Cyprus and operate businesses from there.

Russian authorities have denied that the Kremlin might offer more money, possibly in return for a future stake in Cyprus's large but as yet undeveloped offshore gas reserves, which have raised the island's strategic importance.

An influx of Russian money and influence since the collapse of the Soviet Union has led some Brussels officials to complain privately that Cyprus acts at times as a "Trojan donkey" for Moscow inside the European Union since it joined in 2004.

Banks in Cyprus are to remain shut on Wednesday to avoid a bank run. The island's stock exchange will also be closed on Wednesday. ($1 = 0.7760 euros)

(Additional reporting by Lionel Laurent, Noah Barkin, Gilbert Kreijger, Adrian Croft, Steven C. Johnson and Robin Emmott and Michael Shields; Writing by Paul Taylor/Mike Peacock/Matt Robinson; Editing by Giles Elgood)