Today's blog post is about one of my "favorite" banks. Earlier this month, several news outlets reported that during a call with reporters to discuss the bank's quarterly performance, Jamie Dimon, the Chief Executive of JPMorgan Bank, said:
"Banks are under assault... We have five or six regulators coming at us on every issue..."
Dimon's comments referred to the dip in JPMorgan's quarterly profits by 6.6 percent to $4.93 billion or $1.19 per share. The dip was due to legal costs of $!.1 billion pre-tax (and $900 million after tax). Measured by assets, JPMorgan is the biggest bank in the country. It is still very profitable... just a little less so. Listening to Dimon you'd think that the sky is falling, the bank did nothing wrong, and was (is) a poor, hapless victim of over-zealous government regulators.
This begs the question: are banks really under assault? Is JPMorgan under assault? Is the bank being unfairly targeted by regulators? Let's look briefly at the bank's history:
1.2010 through 2012: the bank paid about $3 billion in fines. That's "B" as in billions, and not "M" as in millions. CounterPunch summarized the bank's history (links added for reference):
"Between June 2010 and November 2012 JPMorgan Chase paid more than $3 billion in fines and settlements... overcharging active-duty service members on their mortgages, misleading investors about a collateralized debt obligation it marketed, rigging at least 93 municipal bond transactions in 31 states... In August 2012 alone it paid a fine of $1.2 billion to resolve a lawsuit that alleged it and other institutions conspired to set the price of credit and debit card interchange fees... February 2012 it paid $1.8 billion to settle claims that it and other financial institutions improperly carried out home foreclosures after the housing crisis..."
2. September 2013: American Banker reported, based upon internal JPMorgan e-mails, that the bank was simplifying its businesses and would improve its compliance:
"In the lengthy email, Dimon said the bank is also working to confront the regulatory challenges facing it, including reviewing its foreign correspondent banking business, improving oversight of outside vendors, and adding regulatory compliance staff. The email comes as JPMorgan Chase nears a $750 million to $800 million settlement with regulators related to last year's "London Whale" trading scandal..."
Now, remember that. the bank restructured to improve its compliance. What happened next? Keep reading.
3. September 2013: the CFPB ordered the bank to refund $309 million to more than 2.1 million customers for illegal credit card practices. Also, the OCC levied a $60 million fine against the bank for billing practices that allegedly violated Section 5 of the Federal Trade Commission (FTC) Act 15 U.S.C. § 45(a)(1), which prohibits unfair and deceptive acts or practices. Plus, the SEC announced a $200 million penalty against the bank for allegedly misstating financial results and no internal bank controls to detect and prevents its traders from fraudulently overvaluing investments.
4. October 2013: the Justice Department and JPMorgan reached a tentative deal where the bank will pay $13 billion to resolve alleged wrongdoing with its mortgage-backed securities practices.
5. December 2013: a data breach at the bank affected 500,000 prepaid card holders.
6. December 2013: U.S. taxpayers learned that of the staggering $13 billion total the bank paid in fines, $7 billion is tax deductible. In effect, U.S. taxpayers subsidized the bank's fines since the fines lowered the bank's tax liability. It's not like the USA has a federal debt problem to worry about. We have this cash just lying around waiting to be used. Not! If anyone can claim they are under assault, it is U.S. taxpayers.
Viewed another way: politicians in Congress believe that the USA can afford to give a $7 billion tax break to an already highly profitable bank, but can't afford unemployment checks for the unemployed, and food stamps for the poor? Our current Congress seems to be Robin-Hood-in-reverse: take from the poor and give to the rich.
7. January 2014: Dimon was paid $20 million for his management of the bank during 2013. His pay had been reduced in 2012 to $11.4 million after huge trading losses previously. Under assault, eh? Somebody, or the bank's owners, think that Dimon is doing a wonderful job.
8. November 2014: the bank agreed to pay $1 billion in fines for foreign exchange market abuses and alleged rigging of the Libor interest rates.
9. January 2015: politicians in the U.S. House voted 276-146 in favor of changes to the 2010 Dodd-Frank rules regulating banks. Thankfully, the measure failed to gain the required two-thirds vote, but the vote signaled support for easing regulations on banks despite the above history of fines and wrongdoing:
"The measure won a 276-146 majority but failed under fast-track House rules that required a two-thirds vote. It's likely to pass soon under rules that require a simple majority. At issue is the so-called Volcker rule, part of the financial overhaul law, which would limit banks' riskiest trading bets that could implode at taxpayers' expense. That kind of risk-taking on Wall Street helped trigger the 2008 financial crisis."
It's amazing, and infuriating, that politicians would vote for such a measure, which effectively says: let's make it easier for those banks that have a clear record of flouting the laws and have paid huge fines. Let's make it easier for the same banks to make more risky bets... err, investments... similar to those bets that caused the last economic recession in 2008. And, if those bets fail (again) why the taxpayers will surely bail out the banks. Seems like taxpayers are under assault, not the big banks.
I guess that large campaign contributions by lobbyists outweigh common sense and voters' desires.
10. January 2015: last week, JPMorgan and three other national banks agreed to pay a total of $2.7 milllion as part of a consent judgment with the Massachusetts Attorney General about alleged illegal foreclosing on home owners in the state.
11. January 2015: after an investigation, a lawsuit alleged that six former JPMorgan Chase loan officers accepted kickbacks for referring business to the now defunct Genuine Title. As part of a consent order with the Consumer Financial Protection Bureau (CFPB), JPMorgan was fined $600,000 and must pay $300,000 to customers. Two of the six former employees were fired. The other four already left the bank.
If you review the above history, no bank executives went to prison. Often, the bank did not have to admit any wrongdoing or guilt. The bank paid a lot in fines. Is that an assault? If bank executives were going to prison, then I could, maybe, agree with Dimon's "assault" comment. But, the bank(s) can easily afford the fines assessed; especially if about half of the total is tax deductible. My view:
Don't whine. Don't do the crime if you can't afford the fines.
The Washington Post reported in November 2013 a telling comment by Peter Scher, global head of corporate responsibility at JPMorgan:
"We’re continuing to play the role we think we should play in terms of being a constructive part of policy discussions... Jamie and our management team do a lot of outreach with our regulators and continue to spend time on the Hill. We have not waned at all in our activity in D.C."
That role includes using lobbyists and outreach to specific politicians sympathetic to the bank (or to the banking industry). From the same Washington Post article:
"In the crowd at the Flying Bridge reception were Sens. Charles E. Schumer (D-N.Y.), Max Baucus (D-Mont.), John Boozman (R-Ark.), John Cornyn (R-Tex.) and Rep. Carolyn B. Maloney (D-N.Y.)... The bank, whose $8 million in lobbying expenses last year outstripped those of every other commercial or investment bank, has a long laundry list of concerns... JPMorgan said it has focused on the Business Risk and Price Stabilization Act of 2011, trying to make sure that Dodd-Frank financial legislation isn’t applied to swaps between bank affiliates, shaping fair debt collection procedures and fighting the Volcker rule, which would restrict banks’ latitude to engage in trading."
So, JPMorgan is not the hapless victim of over-zealous government regulators Dimon and much of the news media would have consumers believe. It considers itself operating in a necessary and important role within the economy and political process. Dimon's "assault" comment is nothing more than a plea to his political stooges... err, allies, for help.
Would you say that the bank improved its compliance since September 2013? To me, the history is clear. The pattern of wrongdoing is clear. If there wasn't any wrongdoing, the bank would have received the attention it received from regulators. Nor would the staggering amounts of fines been assessed, since 2010.
What are your opinions of Dimon's comments? Are banks under assault?