End of the Innocence: JPMorganChase Was Once Considered The Good Bank

Depends what you mean by 'good.' As of last year, 2012, JPMorganChase had paid $16 billion in legal fees related to its various misunderstandings with the regulatory and criminal justice system over the previous four years. That's just the litigation costs, not the fines the bank incurred. And those fees alone comprise 12% of the institution's revenues during that period.

Which, even in an industry where paying fines and fees is just a cost of doing business, might just catch the attention of the occasional shareholder.

The legacy of JP Morgan and Chase somehow being 'good' by comparison with their competitors probably harks back to their earlier days, when JP Morgan rescued the US government (and a number of others) from various financial inconveniences. Chase Manhattan, as it was once known, was headed for decades by David Rockefeller, also considered a fundamentally well-meaning kind of global banker-in-chief. Jamie Dimon, their latter-day successor, earned plaudits for 'rescuing' various failing investment and banking firms as the financial crisis spiraled out of control, though anyone with a knowledge of the numbers understood that the bank was well-compensated for its actions and had structured deals that gave it most of the upside and put most of the risk on the backs of the taxpayers.

Subsequently, Mr. Dimon took to lecturing government officials, regulators and an increasingly compliant media about the outrage he felt about the insults being tossed at his industry. Reckless, selfish, dishonest? Not the banking industry Mr. Dimon knew. The pace and intensity of his attacks grew apace, until it became apparent that his bank was about to suffer the worst loss since the crisis, the so-called London Whale crisis - due almost entirely to failed governance systems. It has now, more recently been hit once again with massive fines, this time thanks to its manipulation of energy prices.

This is the end to which the financialization of the economy has led. It will not stop because the industry's profits appear to rely, systemically, on such abuses of trust. Chase is simply competing with Goldman, AIG, RBS, Santander and a host of the global financial institutions who have all had similar problems. The only question is whether the world will ever summon the will to put a stop to it. We would not bet much on the chances of that happening soon. JL

Matt Taibbi reports in Rolling Stone:

The myth of Chase as the finance sector's one upstanding rock of rectitude reached its zenith in July of 2009 with an embarrassingly hagiographic piece in the New York Times entitled, "In Washington, One Bank Chief Still Holds Sway." In that one, the paper breathlessly praised Jamie Dimon for emerging from "the disgrace of his industry" to become Barack Obama's "favorite banker."

During the financial crisis, while Dr. Evil-ish Wall Street villains like Goldman and Lehman Brothers were getting all the bad press, pundits continually referred to J.P. Morgan Chase as the "good bank."

Chase and Jamie Dimon kept that rep for a good long time. As late as 2011, Dimon's name was being floated around Washington very seriously as a potential replacement for Tim Geithner's Treasury Secretary post. Even when Dimon showed up on the Hill last year to testify (read: obfuscate) about the infamous "London Whale" episode, Senators on the banking committee – who, as writer George Zornick noted, had collected a cumulative $522,088 in donations from Chase – slobbered all over Dimon and shelved the important London Whale matter to ask the great genius's advice on how to fix the economy.
Well, there's some more news about the "good bank" – Chase is about to pay yet another ginormous settlement for cheating and stealing from the public. According to the Wall Street Journal, the Federal Energy Regulatory Commission (FERC) will fine Chase "close to $1 billion" for manipulating energy prices in Enron-esque fashion in Michigan and California. The story is interesting in itself – and we'll write more about it later – but for now, it's just the fact of yet another massive settlement for this bank that's so interesting.
In the three-year period between 2009-2012, Chase paid out over $16 billion in litigation costs. Noted financial analyst Josh Rosner of Graham Fisher slammed Chase in a report earlier this year, pointing out that these settlements and legal costs represented a staggering 12% of Chase's net revenue during this time. There couldn't possibly be a clearer demonstration of the modern banking model, in which companies break rules/laws as a matter of course, and simply pay fines as a cost – a significant cost – of doing business.
For sheer curiosity's sake, I thought I'd list, in capsule form, some of the capers Chase has been caught up in in recent years:
• They were fined $153 million for the infamous "Magnetar" fund case, another scam in which a bank allowed a hedge fund to create a "born-to-lose" mortgage portfolio to bet against. Very similar to the Abacus case that's at the heart of the ongoing "Fabulous Fab" trial;
• Chase paid $228 million for its role in the egregious municipal bond bid-rigging case we wrote about in Rolling Stone in 2011;
• Chase paid $297 million to the SEC last November for fraud involving mortgage-backed securities;
• Chase paid $75 million in cash and generously agreed to forego $647 million in fines in the Jefferson County, Alabama mess, in which a small-town pol was bribed into green-lighting a series of deadly swap deals;
• In two separate orders this spring, Chase was reprimanded by the OCC and the Fed for money-laundering behaviors similar to the infamous HSBC case, and also for regulatory failures and fraud in the London Whale episode. There was a separate FBI investigation into the London Whale probe in which they allegedly lied to customers and investors about the loss;
• They're under investigation for allegedly failing to disclose Bernie Madoff's trading activities to authorities;
• They were one of 13 banks asked to pay up in this year's $9.3 billion robosigning settlement;
• They were one of four banks last year to settle for a total of $394 million with the OCC for improper mortgage servicing practices;
• They were ordered by the CFTC to pay $20 million last year for improper segregation of customer funds (this was part of the Lehman investigation). The CFTC also fined Chase $600,000 last year for violating position limits in the cotton markets;
• Last year, Chase paid a $45 million settlement to the federal government for improperly racking up fees for veterans in mortgage refinancings. Hey, if you're going to steal from everyone, you can't leave out those veterans overseas!
• In 2010, Chase paid $25 million to the state of Florida for selling unregistered bonds to a state-run municipal money-market fund;
• The bank last year was convicted in Europe along with several other banks for fraudulent sales of derivatives to the city of Milan. A total of about $120 million was seized from Chase and three other banks.
There have been so many settlements with so many agencies around the world (I'm in a hurry and can't get to Chase's messes in Britain, Japan and elsewhere) that they're almost impossible to count. Some papers are reporting that Chase is being investigated by as many as eight different agencies in the U.S. alone.
There are some other civil actions left out, too, like the $110 million class-action settlement for improper charging of overdraft fees, or their part in the gigantic $6 billion settlement completed last year involving Visa, MasterCard and other credit card providers for manipulating card service rates. And states like California have only just begun crawling up Chase's backside for its role in the lunatic filing of erroneous credit card collection lawsuits, a scam outed by whistleblower Linda Almonte.
Chase is turning into the Zelig of the corruption era. In virtually every corruption scandal, the bank is in the background somewhere. The HSBC money-laundering mess? Chase was reprimanded for similar abuses. The Madoff story? They're under investigation there. MF Global? As banker to Jon Corzine's notorious firm, they were part of a $546 million settlement to return money to MF Global's outraged customers. Jefferson County? That was them. And again, you might have heard of Abacus, but Magnetar was just as bad. Not that anyone's counting or anything.
Memo to colleagues on the White House pool: could someone please ask the president if Jamie Dimon is still his favorite banker?