The Financial Crisis Still Haunts JPMorgan
It seems reasonable that the largest bank by assets in the United States, JPMorgan Chase (NYSE:JPM), would attract a lot of regulatory scrutiny. The firm had assets under custody worth $18.9 trillion in the second quarter and held $369.1 billion in deposits and other third-party liabilities. The firm provided $1 trillion in credit and raised capital in the first half of 2013, making it a primary driver of not just financial but overall economic activity in the U.S.
For a period, JPMorgan fostered a reputation as the best manager of risk on Wall Street. After all — as indicated by its namesake — the institution can trace its roots back to legendary financier and banker J. P. Morgan, who won the firm a tremendous amount of good karma when he led the bailout of the financial sector following the Panic of 1907.
But that was over 100 years ago — and the late 2000s financial crisis wiped all the good mojo off the board. Today, it seems like JPMorgan can’t catch a break: public sentiment is against it, and government investigations and litigation are piling up.
Sources familiar with the situation told Reuters on Thursday that the U.S. Department of Justice was expanding its probe against JPMorgan subsidiary Bear Stearns. The probe, which was first revealed to the public by Reuters in February, is related to allegedly rotten home loans that were used to create mortgage-backed securities — the financial instrument at the heart of the financial crisis.
The news is yet another ghost from the financial crisis that has come back to haunt the financial institution. The firm reported in its most-recent 10-Q filing with the Securities and Exchange Commission that the range of possible losses associated with its ongoing and pending legal proceedings to be between $0 and $6.8 billion more than what it had already set aside.
The high end of this range is up from $6 billion in the previous quarter. The firm set aside $600 million in additional litigation reserves (9 cents per share after tax) in the second quarter.
Over the past few weeks alone, JPMorgan agreed to pay $410 million in penalties to the Federal Energy Regulatory Commission for allegations of energy market manipulation in California and the Midwest, was accused of fraudulently masking the risk of financial instruments in Italy, and had two board members resign in relation to the firm’s $6.2 billion London Whale Trade fiasco.
Just this week, JPMorgan along with Goldman Sachs (NYSE:GS) and Glencore Xstrata became the subjects of a lawsuit filed by aluminum purchasers for their alleged involvement in the manipulation of the price of the commodity.