Thursday, December 19, 2013

JPMorgan Chase and Penance and Fines

And whatten penance wul ye drie for that, young Edward, oh young Edward?
— Edward, A Scottish Ballad

One has to feel sorry for JPMorgan Chase. Several months ago it thought it had not only paid a sufficient amount in fines to make up for its bad behavior but it had also engaged in a form of penance for some of the bad things it had done. Little did it know.

The penance was reformation of its practices with respect to payday loans. Before the reforms, JPMorgan Chase (and many other institutions dealing with payday lenders) permitted% payday lenders to automatically withdraw repayment amounts from the borrowers’ bank accounts and agreed to prevent borrowers from closing their accounts or issuing stop payment orders so long as the payday lender was not fully repaid. As a result a borrower who did not have enough money in the bank to repay the lender the amount due on a given date was charged an insufficient fund fee by the bank each time the lender submitted a request for payment in many cases generating hundreds of dollars in fees imposed on the borrowers. That practice came to an end in May 2013. The fines it paid, in addition to its act of penance were described by Kevin McCoy of USA Today.

Between June 2010 and November 2012 JPMorgan Chase paid more than $3 billion in fines and settlements that related to, among other things, 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, and countless other misdeeds. 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. In January 2013 and 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. Not only did it pay large fines. Jamie Dimon, its unfailingly cheerful, beautifully coiffed CEO, took a pay cut which, including deferred compensation, reduced his daily salary from $63,013 to $31,506. Sadly, those events were not to be the end of its troubles. Indeed, as it turns out they were merely the tip of the iceberg.

In July 2013 it paid $410 million for alleged bidding manipulation of California and Midwest electricity markets. In September 2013 it paid $389 million for unfair billing practices, in September it paid $920 million for actions of the “London Whale” disaster, and in October 2013 another $100 million with respect to the same fiasco. Then came the really big news. On November 19, 2013 it was reported that JPMorgan Chase was going to pay $13 billion to settle what in non-legal terms would be described as a whole bunch of claims that had to do with the mortgage crisis of a few years back. Included in the $13 billion is $4 billion for consumer relief, $6 billion to pay to investors and the remaining $3 billion is a fine. December 13 it was announced that the bank was entering into a $2 billion deferred prosecution agreement with the government because of its role in the Bernie Madoff Ponzi scheme. According to the settlement the bank ignored signs that suggested Bernie Madoff was conducting a Ponzi scheme and cheating his investors.

The payment of almost $20 billion in fines would be enough to spoil the holidays for almost anyone. Happily for the bank, there was a silver lining to its financial cloud. Although $13 billion is a lot of money, Marianne Lake, the Chief Financial Officer of the bank explained that taxpayers will help the bank pay the fine. She explained that of the $13 billion, $7 billion is tax deductible. In addition to that bit of cheery news, no one has to plead guilty to anything bad in connection with the Madoff fine. Although the bank is agreeing to a deferred prosecution no one such as Jamie Dimon, is going to jail. There will, of course, be some public shame for the bank, kind of like being placed in the stocks in a public square. The court filing in which the settlement is finalized will list in detail all the criminal acts committed by the bank for which it will not be punished. There is not a criminal anywhere in the world who would not happily accept a public recital of the crimes committed instead of entering a formal plea of guilty with the attendant risk of going to jail. A bit of embarrassment beats a bit of time in jail every time. Just ask Jamie Dimon or other officers at JPMorgan Chase.