Jamie Dimon (And JP Morgan) Besieged

Sometimes, after all this time, I forget that I actually worked for JP Morgan.

From the fall of 1997 to almost the end of 1999, I was the Director of the JP Morgan Y2k project management office in Latin America. My team made sure all the bank’s systems in Mexico City, Buenos Aires, and São Paulo were ready for the Year 2000. I  joined JP Morgan as an employee, a Vice President in the Latin America Corporate Technology team, in April of 1998. I had started the project as a consultant for the bank with KPMG Consulting.

Maybe I should have stayed longer… But we had finished our preparations for the millennium change and we were only waiting for the ball to drop on December 31st. I had been away a long time and needed to go home. I returned to the US in November of 1999 and rejoined what was now BearingPoint and then returned to Latin America for that firm. Everything at JP Morgan in Latin America turned over to the new year smoothly but my team drank champagne all over South America without me.

I wrote an update last Friday for Medium.com of my November blog post, “My Big Fat Overrated CEO: McKenna On Dimon On The Keiser Report.” In that Keiser Report I had asked, “Why does Jamie Dimon still have a job?” The bank was facing a long list of legal and regulatory challenges even then.

Last Friday’s Medium post, “Jamie Dimon Safe at Home, For Now”, explains that lots more has happened since.

Almost a year later, The Wall Street Journal says on August 18 that Barclays – another PwC audit client repeatedly in legal trouble – says JP Morgan, audited by PwC, is on a tear to have more legal woes than any other bank, even the other big US bank PwC audit client, Bank of America.

Regulatory headaches keep piling up for J.P. Morgan Chase & Co.

A growing number of lawsuits and investigations could force the nation’s largest bank to absorb $6.8 billion in future legal losses above its existing reserves, according to a filing earlier this month. That amount is greater than any other U.S. bank, according to an analysis from Barclays Research,  a unit of Barclays PLC.

The numbers put J.P. Morgan on pace to supplant Bank of America Corp. as the big lender with the most legal problems. Since early 2010 only Charlotte, N.C.-based Bank of America has paid out more in legal costs and settlements, according to Barclays’ analysis.

My blog post at Medium.com updates everyone with the latest on the JP Morgan “Whale” traders who were indicted last week and assorted other energy trading and mortgage related investigations, the stuff of what The Wall Street Journal reported. But The Wall Street Journal had an even newer one, newer than even last Friday. According to a recent filing by the bank, “J.P. Morgan faces six separate investigations from the U.S. Justice Department, according to the filing, three of which hadn’t previously been disclosed.”

The bank also said in the same filing that it is responding to questions from an antibribery unit of the Securities and Exchange Commission about its hiring practices in Hong Kong. The agency asked the bank to provide information about J.P. Morgan’s “business relationships with certain clients,” according to the filing. The New York Times NYT +0.79% reported Saturday that the SEC was specifically looking into the bank’s hiring of Chinese officials’ children and how those hires may have helped the U.S. bank win business.

The New York Times was first to report the Chinese bribery investigation on August 17 in DealBook and then put the story on its front page on Sunday.

The focus of the civil investigation by the Securities and Exchange Commission’s antibribery unit has not been previously reported. JPMorgan — which has had a number of run-ins lately with regulators, including one over a multibillion-dollar trading loss last year — made an oblique reference to the inquiry in its quarterly filing this month. The filing stated that the S.E.C. had sought information about JPMorgan’s “employment of certain former employees in Hong Kong and its business relationships with certain clients.”

In May, according to a copy of the confidential government document, the S.E.C.’s antibribery unit requested from JPMorgan a battery of records about Tang Xiaoning. He is the son of Tang Shuangning, who since 2007 has been chairman of the China Everbright Group. Before that, the elder Mr. Tang was the vice chairman of China’s top banking regulator.

The agency also inquired about JPMorgan’s hiring of Zhang Xixi, the daughter of the railway official. Among other information, the S.E.C. sought “documents sufficient to identify all persons involved in the decision to hire” her.

It’s interesting that Bloomberg reports China Everbright was the firm potentially behind a dramatic Chinese “flash crash” last week. (And at least two more PwC audit clients are facing formal bribery investigations in China, GlaxoSmithKline and Sanofi.)

Everbright Securities Co. (601788) plunged in Shanghai as the broker faces possible fines and more restrictions on business after an unprecedented stock trading error that threatens to erode confidence in China’s market.

The shares fell by the 10 percent daily limit to 10.91 yuan at the close today, with trading volumes about 68 percent below this month’s average. Haitong Securities Co. (600837) sank the most in three weeks as its board secretary said the company was looking into media reports about a trading problem.

State-controlled Everbright had been suspended since it made 23.4 billion yuan ($3.8 billion) of erroneous buy orders on Aug. 16, an event the China Securities Regulatory Commission described as the first of its kind. The company mispriced 10 million yuan of government bonds yesterday. The CSRC banned Everbright from proprietary trading for three months as the regulator seeks to lure investors back to the world’s second-worst performing stock market in the past four years.

But that’s not all!

Today American Banker Morning Scan sums up anonymous reports in The Wall Street Journal and the Financial Times from yesterday about another investigation.

“…the Justice Department is now looking into whether JPM manipulated U.S. energy markets. Scan readers will recall that the bank agreed to pay $410 million to the Federal Energy Regulatory Commission as part of a civil settlement over energy market manipulations just last month. JPM “didn’t admit to wrongdoing as part of the settlement,” the Journal makes a point of noting. “It did name Blythe Masters, the bank’s head of commodities, three times in the filing,” the FT adds. JPM, Masters and the DOJ have yet to formally comment on the new probe.”

My blog post in Medium says, even before these new revelations, that…

There’s a strong case for holding Dimon, and former CFO Braunstein, accountable for the “Whale” losses and other financial crimes and sordid misdemeanors committed by the bank using Section 302 and 906 of the Sarbanes-Oxley Act of 2002. Those sections of the law cover false certifications by CEOs and CFOs of controls over financial reporting and disclosures included in quarterly and annual financial statements.

Even JP Morgan’s own Task Force report laid the blame on Dimon and Braunstein for $8 billion in losses attributed to the “Whale” trades.

“As the Firm’s Chief Financial Officer, Douglas Braunstein bears responsibility, in the Task Force’s view, for weaknesses in financial controls applicable to the Synthetic Credit Portfolio, as well as for the CIO Finance organization’s failure to have asked more questions or to have sought additional information about the evolution of the portfolio during the first quarter of 2012. This includes the failure by CIO Finance to have sufficiently questioned the size of the positions, the increase in RWA notwithstanding the RWA reduction mandate and the Synthetic Credit Portfolio’s profit-and-loss performance. And while the Task Force believes that the principal control missteps here were risk-related, the CIO Finance organization could have done more.That they did not stems, in part, from too narrow a view of their responsibilities – i.e., a view that many of the issues related to the Synthetic Credit Portfolio were for the Risk organization and not for Finance to flag or address. The Task Force’s views regarding Firm Chief Executive Officer Jamie Dimon are consistent with the conclusions he himself has reached with respect to the Synthetic Credit Portfolio.”Dimon is quoted in the report as saying:

“CIO, particularly the Synthetic Credit Portfolio, should have gotten more scrutiny from both senior management, and I include myself in that, and the Firm-wide Risk control function. . . . . Make sure that people on risk committees are always asking questions, sharing information, and that you have very, very granular limits when you’re taking risk. . . . . In the rest of the company we have those disciplines in place. We didn’t have it here.”

Tick, tock Jamie…