More Bad Press: Government to Arrest Former JPMorgan Employees
JPMorgan (NYSE:JPM) is getting more and more bad press lately, as the company has gone from Congressional scrutiny over its physical commodities division to the possible arrest of two former employees who are now at large.
Congress has been exploring the issue of whether or not banks should be involved in physical commodities trading with a handful of notable Senators, including Democrat Sherrod Brown, saying that the answer is no. Citing risk to the health of the economy, senators like Sherrod have pushed the Federal Reserve to explain its rationale and methods behind the regulatory process as the government looks to tackle all aspects of financial safety in the wake of 2008′s colossal meltdown.
While Congress has not directly pushed for a ban on the activity yet, firms are feeling the heat, and JPMorgan has been one to jump ahead, feeling that momentum is clearly not on their side. The firm is planning to spin off its physical commodities unit into a separate business or sell it altogether. The negative press surrounding its commodities operations has been amped up by a focus on accusations of aluminum price manipulations, specifically, that the firm was hoarding aluminum in warehouses to keep the price higher.
As the firm lets those issues play out, two former employees and the infamous ‘London Whale’ have entered the spotlight, as the government thinks that there was a deliberate effort to falsify the size of losses taken, causing the firm itself to misreport losses. Manager Javier Martin-Artajo and trader Julien Grout have been accused of tampering with internal records during the process in which JPMorgan lost over $6 billion on risky trades in London, which came to be known as the ‘London Whale’. However, this term came to be passed on to trader Bruno Iskil who was since absolved from any wrongdoing in exchange for his cooperation with the government.
The Securities and Exchange Commission is also planning to seek an admission of wrongdoing from JPMorgan, which usually allows firms to abstain from admitting or denying wrongdoing in situations like these. The SEC has not yet sought civil charges against the company, though.
The United Kingdom could potentially extradite Martin-Artajo and Grout to the United States, though this is proving to be more difficult than anticipated, as they are both natives of other European countries and have not been found yet. Recorded conversations between Iskil and Grout explored as part of a Senate Subcommittee report have allegedly shown that Iskil expressed concern over the size of the losses, and that Grout told him, “I am not marking at mids as per a previous conversation,” meaning he would move the estimated losses to more generous figures, misrepresenting the size of the damage done in London.
The publicity is making a rough patch for JPMorgan and the larger financial sector, as countries in Europe as well as the United States are angling to crackdown harder on banks in the midst of public distrust for the institutions. Capital rules have been jacked up in the United Kingdom and could get worse as time progresses. How this affects investors confidence in the institutions going forward, ultimately, time will tell.
JPMorgan’s stock was down over a half percent on Friday, closing at $54.52.
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