Senate committee launches probe of JPM’s ‘Whale’ losses

NEW YORK, Fri Sep 7, 2012 – A U.S. Senate committee has launched a probe into JPMorgan Chase’s “London Whale” trading losses, according to a source familiar with the investigation.

The Permanent Subcommittee on Investigations, chaired by Senator Carl Levin, is interviewing current and former employees of JPMorgan’s Chief Investment Office in connection with the bank’s $5.8 billion loss on trades in an obscure corner of the credit market, according to the source.

A spokeswoman for the committee declined to comment.

JPMorgan’s losses stemmed from bets by London-based CIO trader Bruno Iksil on an index for credit default swaps. His outsized positions earned him the nickname “London Whale” from the hedge fund traders taking the other sides of his positions.

An internal investigation by the bank revealed the possibility that the trades may have been deliberately mismarked in JPMorgan’s books to make the losses look smaller.

On Thursday, JPMorgan named Craig Delany as the new head of the chief investment office, filling a role that had been vacant for over three months after his predecessor, Ina Drew, and other executives and traders from the CIO resigned.

Federal investigators and the Securities and Exchange Commission are looking into whether anyone involved in the incident committed a crime.

So far, seven current and former JPMorgan employees have hired lawyers to help them navigate the investigations. The bank’s internal probe is ongoing.

New York lender sues big banks over alleged Libor manipulation

NEW YORK, Mon Jul 30, 2012 – A New York lender has sued a group of large banks on the panel that sets a key global interest rate, saying it was cheated out of interest income through alleged rate manipulation.
The lawsuit, filed last week in District Court in Manhattan, seeks class-action status on behalf of similar lenders.
Berkshire Bank, which is not connected to Warren Buffett’s Berkshire Hathaway, says borrowers were able to take advantage of artificially low interest rates because of the big banks’ “unlawful suppression” of benchmark rates.
Defendants named in the suit include Bank of America Corp., Barclays Plc., JPMorgan Chase & Co. and Citigroup Inc.
At least one other community bank has filed similar legal claims, a sign that the rate manipulation scandal is having a broad impact. The Community Bank & Trust of Sheboygan, Wisconsin, said in a lawsuit several months ago that alleged rate rigging had kept its interest margins artificially low. That lawsuit also is pending in District Court in Manhattan.
Berkshire Bank had $854 million in assets at the end of last year, according to its website. It has 10 branches in New York and one in New Jersey.
The reliability of the London interbank offered rate, or Libor, which underpins transactions worth trillions of dollars, has been rattled by the rate manipulation accusations. Libor is used to set interest rates on credit cards, student loans and mortgages.
Big banks already face an array of Libor lawsuits by some big investors and local governments. Bank defendants have said in court papers seeking dismissal of these lawsuits that plaintiffs have failed to show banks acted to restrict competition, even if rates were improperly stated.

JPMorgan in $100 million credit card settlement

NEW YORK, Tue Jul 24, 2012 – JPMorgan Chase & Co. has agreed to pay $100 million to settle litigation by credit card customers who accused the largest U.S. bank of improperly boosting their minimum payments as a means to generate higher fees.
The class-action settlement resolves a three-year-old case stemming from Chase’s decision in late 2008 and 2009 to boost minimum monthly payments for thousands of cardholders to 5 percent of account balances from 2 percent.
It comes as JPMorgan, like many of its main rivals, addresses a wide range of litigation over its banking practices, such as whether it conspired to overcharge retailers on card transactions, or manipulated benchmark interest rates.
Cardholders claimed that JPMorgan had induced them to transfer balances from other lenders to Chase card accounts, where the bank would consolidate their debt into loans with “fixed” interest rates until balances were paid off.
But according to the cardholders, JPMorgan boosted minimum payments to force them either to accept higher rates to preserve the lower payment requirement, to make more late payments and trigger more fees or a 29.99 percent penalty interest rate, or to close underperforming accounts.
In a Monday filing with the federal court in San Francisco, lawyers for the cardholders said the $100 million is 45 percent of the $220 million in up-front transaction fees that their clients paid for the promotional loans.
They called the settlement an “excellent result” for cardholders, who would recover “a substantial portion of the transaction fees they paid.”
Legal fees would not exceed 27 percent of the settlement fund, the filing said.

JPMorgan Chase CEO to appear before Senate panel

WASHINGTON, Thu May 31, 2012 – JPMorgan Chase and Co. CEO Jamie Dimon will testify before the U.S. Senate Banking Committee on June 13 to discuss the bank’s recent trading losses, the committee said on Thursday.

The committee had previously asked Dimon to appear on June 7.

“June 13 is the only date in June that works for both the Senate Banking Committee and Mr. Dimon,” the committee said in a statement.

Earlier this month, JPMorgan said it had suffered at least $2 billion in losses from a set of trades that the bank said were meant to hedge risk, but that some analysts and critics say look more like speculation.

Regulators are examining what led to the losses before making any decisions about whether JPMorgan and other large banks will have to take steps to scale back the risk taking that led to the losses.

The losses have also added renewed vigor to the debate in Washington over how tough regulators should be when implementing the 2010 Dodd-Frank financial oversight law, passed in response to the 2007-2009 financial crisis.

A particular focus has been the so-called Volcker rule, which puts restrictions on bank trading activities.

A proposed rule was released in October, and a final version is due in July, although it may be delayed by a few months.

Supporters of the Volcker rule want regulators to tighten a provision in the October proposal that allows some trades to escape a ban on proprietary trading if they are done to hedge risk. They say the current proposal is too lax and would not have prevented the type of risk-taking that led to the JPMorgan losses.

JPMorgan’s future losses at the mercy of an obscure index

NEW YORK, Thu May 17, 2012 – It’s the biggest parlor game on Wall Street: Estimating how large JPMorgan Chase & Co.’s trading loss will be from a hedging strategy that went wrong.

The biggest U.S. bank by assets has already disclosed $2 billion of paper losses, and CEO Jamie Dimon said it could lose another $1 billion or more.

The losses will grow, some traders say, because it appears JPMorgan has only sold a small portion of its position, leaving it vulnerable to price swings in a thinly traded market. Others are not so sure the bank will suffer much more than it already has. Dimon said the bank won’t rashly sell, and any additional losses could arise throughout the year. A JPMorgan spokeswoman declined comment.

The source of JPMorgan’s problems is an obscure group of indexes that track the performance of corporate bonds. One of the indexes, the Markit CDX NA IG Series 9 maturing in 2017, is essentially a portfolio of credit default swaps – basically contracts that protect against default by a borrower.

This particular index is tied to the credit quality of 121 North American investment-grade bond issuers, including such names as Kraft Foods and Wal-Mart Stores.

JPMorgan used that index, and others, to bet that credit markets would strengthen. Because that position is widely known on Wall Street, many traders are betting the opposite way in the hope of profiting as the bank’s losses increase. The index has been moving against JPMorgan in recent days.

Oppenheimer & Co. used the average of the index in 2011 – 141 – to estimate on a straight line basis a theoretical additional loss for the bank of $5.9 billion. Oppenheimer analysts, however, cautioned that such a large loss was unlikely. “We think the number will be less” than a $5 billion estimate, they said.

JPMorgan to pay $150 million over failed Sigma SIV

NEW YORK , Tue Mar 20, 2012 – JPMorgan Chase & Co. agreed to pay $150 million to settle a lawsuit by pension funds and other investors accusing the largest U.S. bank of imprudently investing their cash in a risky debt vehicle that collapsed in 2008.

The settlement with investors including the American Federation of Television and Radio Artists Retirement Fund was disclosed in filings late Friday with the U.S. District Court in Manhattan.

It related to the collapse of Sigma Finance Corp, a $27 billion investment fund created by London-based Gordian Knot Ltd. Sigma failed in October 2008 at the height of the global financial crisis.

According to the complaint and a regulatory filing, JPMorgan invested cash collateral posted by participants in a securities lending program in about $500 million of medium-term notes issued by Sigma Finance Inc, a structured investment vehicle.

While Sigma once carried “triple-A” ratings, JPMorgan “buried its head in the sand and refused to heed the warning signs” as analysts began predicting by late 2007 that Sigma would be unable to repay the notes, the complaint said.

Sigma’s failure left about $1.9 billion as security for roughly $6.2 billion of medium-term notes and other secured debt, the complaint said.

JPMorgan says may face SEC action on mortgage bonds

NEW YORK – JPMorgan Chase & Co. said it may face federal enforcement actions stemming from two investigations into mortgage-backed securities that went bad in the financial crisis.

The largest U.S. bank, in a regulatory filing on Wednesday, said Securities and Exchange Commission staff told the company in January that they may recommend the commission bring cases against the company.

One possible case involves the bank’s scrutiny and disclosure of facts behind two sets of mortgage securities, JPMorgan said.

A second investigation involves loans used in mortgage securities created by Bear Stearns, the investment bank that collapsed and was sold to JPMorgan in 2008.

The JPMorgan statements, included in an annual filing to the SEC, follow similar disclosures on Tuesday by Goldman Sachs Group Inc. and Wells Fargo & Co.

The SEC staff frequently notifies subjects of investigations that it is weighing allegations of civil wrongdoing and offers them a chance to argue against legal actions.

The disclosures are the latest sign that government officials are stepping up action against banks that packaged home loans into bonds during the housing boom. The underlying mortgages later soured, spurring billions in losses for investors.

JPMorgan’s investment bank revenue ‘flat,’ chief Dimon says

NEW YORK ― JPMorgan Chase & Co., the largest U.S. lender by assets, will have “essentially flat” investment bank revenue this quarter excluding certain accounting adjustments, CEO Jamie Dimon wrote in an investor presentation.

The comparison is to this year’s third quarter, said Jennifer Zuccarelli, a spokeswoman for the bank. That period was the worst for trading and investment banking revenue at the biggest Wall Street firms since the depths of the financial crisis in 2008, excluding accounting gains.

The remarks show U.S. investment banks still face headwinds as corporations put off capital raises and investors sell riskier assets on concern the U.S. economy is weakening and Europe’s debt crisis may spread. New York-based JPMorgan’s private equity unit also expects to post a “modest loss” in this year’s fourth quarter, according to the presentation.

The company’s investment bank generated about $4.5 billion in revenue during the third quarter after backing out a $1.9 billion gain in debt-valuation adjustments. Dimon excluded that accounting effect in forecasting the unit’s revenue in a slide show to be delivered today at a conference hosted by Goldman Sachs Group Inc. in New York. A copy of the document was posted on JPMorgan’s website.

Revenue at the investment-banking unit has slid this year from $8.2 billion in the first quarter as concern that Greece would default and U.S. lawmakers would fail to raise the debt ceiling escalated in the third quarter. The firm told investors in October that the division will face similar market conditions for the rest of the year.

JP Morgan restarts Hewlett-Packard; cautious on big challenges

PALO ALTO, Calif. ― Hewlett-Packard Co. could face a troubled turnaround, with tough challenges that could result in underwhelming revenue and earnings growth, JP Morgan said, resuming coverage of the Silicon Valley company with an “underweight” rating.

HP is likely to underperform its peers as it undergoes a leadership transition, and the broader economy affects an overhaul of its businesses, JP Morgan analysts, led by Mark Moskowitz, wrote in a client note.

In August, HP stunned Wall Street by dropping its new TouchPad tablet device and saying it may spin off the world’s largest personal computer business.”HP’s $11.7 billion buy of software company Autonomy is expensive in the context of slowing organic growth and was not in the best interest of shareholders,” Moskowitz said.

“We think HP has set an unfavorable precedent that favors the sellers, not shareholders … HP will have to make a series of acquisitions over the next 5-10 years to become a full-fledged, one-stop IT shop,” he said.

The analyst expects HP, which has missed profit expectations three quarters in a row, to further disappoint Wall Street in the near to mid-term.

“The unclear messaging related to the PC business has contributed to competitive displacements, based on our conversations with industry contacts. It is our view that Dell and Lenovo are the early beneficiaries,” Moskowitz said, adding a slowdown would weigh on HP’s printer and services businesses.

Printer sales are likely to be dented as consumers move to smartphones and tablets, and slowing demand squeezes corporate IT budgets.

HP last month named Meg Whitman as president and CEO, replacing Leo Apotheker in a bid to restore investor confidence in the tech blue-chip.

Moskowitz praised Whitman’s leadership and communication skills, but expressed concerns about the former eBay Inc. CEO’s appointment.

“Our research indicates Whitman was not always willing to make the big changes at eBay near the end, and changes that investors had sought did not occur until after Whitman’s tenure. We are cautiously optimistic on the new appointment.”

Shares of the company closed at $23.02 on Tuesday on the New York Stock Exchange.

JPMorgan Q3 trading revenue on track to fall 30 percent

NEW YORK ― JPMorgan Chase & Co’s trading revenue is on track to fall 30 percent this quarter from the second quarter, the bank’s investment banking head said on Tuesday.

Investment banking fees could be about $1 billion, said JPMorgan’s Jes Staley, compared with $1.9 billion in the second quarter.

The European debt crisis and the battle over the U.S. debt ceiling weighed on multiple markets, reducing the value of securities that banks hold in their trading inventories. Trading volume was strong for some products, but mainly in markets where margins are slim for the Wall Street firm, like U.S. Treasuries.

Lower market levels also cut into asset management revenue, and the bank is on track to report a modest loss in its private equity business, Staley said.

Staley is widely seen as a possible successor to Chief Executive Jamie Dimon. The investment bank that Staley oversees is the largest of JPMorgan’s six business segments.

Speaking at a Barclays Capital conference in New York, Staley said the bank is “not worried” about its European loans. JPMorgan is the second-largest U.S. bank with $2.2 trillion of assets.

JPMorgan is usually the first major U.S. bank to report quarterly earnings. Results are next due in October.

JPMorgan shares were up 1.2 percent to $32.81 in late Tuesday morning trade. They are down about 22 percent for the year so far.