Can JPMorgan Handle This Massive Regulatory Burden?
With JPMorgan Chase’s (NYSE:JPM) business practices receiving close examination while under the microscope of federal regulators, investigations are mounting as more problems come to light. Although it emerged from the financial crisis as one the healthiest of the big banks, that reputation is being chipped away. Not only has the bank been downgraded by a confidential government scorecard and its Chief Executive Officer Jamie Dimon come under increasing criticism, but executives are worried that relationships in Washington have frayed, according to The New York Times.
In addition to the ongoing Senate investigation of the bank’s $6.2-billion trading loss last year and lingering accusations about its lax controls against money-laundering, prosecutors are now examining whether JPMorgan Chase failed to adequately alert regulatory authorities about Bernard Madoff’s activities and they are also are concerned that the bank made errors in its review of troubled mortgages.
A total of eight federal agencies are investigating JPMorgan regarding these issues, including the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, the Securities and Exchange Commission, and the Federal Bureau of Investigation.
The bank has acknowledged its regulatory problems. “We get it, and we are dealing aggressively with these issues,” spokesman Joe Evangelisti told the Times. “Jamie and other executives feel terrible that the bank’s self-inflicted mistakes have put regulators in an awkward position,” he said, adding that that banks is “wholly to blame” for its errors and it is “fully cooperating with all authorities to make things right.”
But right is a long way away.
In January, when JPMorgan and other large banks made a multibillion-dollar settlement of their foreclosure abuses, they agreed to inspect each loan file to find potential errors. This process was meant to help regulators determine the size of the payments to homeowners. During its assessment of 880,000 mortgages, JPMorgan overstated the potential harm for more than 5,000 of the loans, people familiar with the matter told the Times.
While the errors did not reduce the amount of relief given to homeowners, the publication did note that the Office of the Comptroller of the Currency — which is growing impatient with the bank’s mistakes — could also fine JPMorgan. The tensions between federal authorities and the bank were evident in the Senate’s hearing on the London Whale trading losses. A report, produced by the Senate Permanent Subcommittee on Investigations, portrayed Dimon’s approach to the investigation as defiant, according to the Times. The report also stated that he took on an adversarial tone with regulators when they asked him to produce additional information.
The mortgage errors, when taken alone, are relatively minor. However, with the number of investigations piling up, they have increased concerns within JPMorgan. The added scrutiny has created a significant challenge for the bank and its chief executive, who built his reputation on steering JPMorgan through the financial crisis. Now, bank executives are worried that the sheer amount of regulatory attention will undercut Dimon’s authority in Washington, reported the Times. Dimon has already seen his compensation cut and faced calls for his resignation as chairman of the bank.
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