8/13/2019 JP Morgan pays the price

1/2

Bankers dont casually hand over $13 billionto regulators for no reason at all.

Needless to say eyebrows were raised on Wall Street when J !organ "haseagreed to hand over a record #fine to the %e&art'ent of Justice earlier this

'onth. While it is believed a deal has been done( no official state'ent has been

'ade.

Be reassured( that Ja'ie %i'on and the brain trust at J !organ have decided

this settle'ent is the best deal that they can get and is 'uch &referable to

having the evidence &resented in o&en court. )nstead( they will be able to sign

off on an agreed state'ent of facts that the banks negotiators will undoubtedly

'ake sure 'ini'ises da'age to the banks re&utation and its e*&osure to

liabilities to third &arties har'ed by its behaviour.

+he case revolves around &ractices of &ackaging bad 'ortgages into securities.

)n &articular( it has been alleged that J !organ &al'ed off $33 billion in to*ic

'ortgage bonds to ,annie !ae and ,reddie !ac fro' - Se&te'ber //0 to

Se&te'ber //-.

+he banks behaviour was even 'ore galling as 'ost of these transactions were

co'&leted before the crisis hit( and J !organ continued to record &rofits during

//( when 'ost of its co'&etitors were tottering of the edge of insolvency.

J !organ 'ay have dodged the bullet through so'e fleet footwork( but its role

in creating the 'unitions that triggered the global financial crisis should not beforgotten. )n 122- it invented credit default swa&s "%S4( which Warren Buffet

warnedre&resented #financial wea&ons of 'ass destruction( and so they

&roved.

+he settle'ent will co'e out of $3 billion in #litigation reserves that has been

set aside( which shows that J !organ believes that there is 'ore &ain to co'e.

"ases are &ending over a $5 billion loss caused by trading by the 67ondon

Whale6and an investigationinto whether J !organ engaged in bribery by hiring

of the children of "hinese officials.

Wall Street( needless to say is u&set that one of its own has taken a large hit.

"ould this be the start of a 'ore aggressive a&&roach by the %e&art'ent of

Justice( and who 'ight be ne*t8

+his develo&'ent 'ay assuage criticis' of the govern'ent for going soft on

bankers( but are they likely to stay the course. 7awrence !c%onald( a for'er

7eh'an Brothers trading 9ice resident( suggeststhat it will be difficult for the

govern'ent to 'aintain its hard:line because it will be de&endent on the large

banks should another crisis hit the worlds econo'y.

http://www.reuters.com/article/2013/10/20/us-jpmorgan-settlement-idUSBRE99I09020131020http://www.berkshirehathaway.com/2002ar/2002ar.pdfhttp://dealbook.nytimes.com/2013/10/15/jpmorgan-said-to-reach-deal-with-trading-regulator/?_r=0http://dealbook.nytimes.com/2013/10/15/jpmorgan-said-to-reach-deal-with-trading-regulator/?_r=0http://www.bloomberg.com/news/2013-08-29/jpmorgan-bribe-probe-said-to-expand-in-asia-as-spreadsheet-found.htmlhttp://www.ft.com/cms/s/0/72a0044c-39ab-11e3-a3a4-00144feab7de.html#axzz2iJOHmRdlhttp://www.reuters.com/article/2013/10/20/us-jpmorgan-settlement-idUSBRE99I09020131020http://www.berkshirehathaway.com/2002ar/2002ar.pdfhttp://dealbook.nytimes.com/2013/10/15/jpmorgan-said-to-reach-deal-with-trading-regulator/?_r=0http://dealbook.nytimes.com/2013/10/15/jpmorgan-said-to-reach-deal-with-trading-regulator/?_r=0http://www.bloomberg.com/news/2013-08-29/jpmorgan-bribe-probe-said-to-expand-in-asia-as-spreadsheet-found.htmlhttp://www.ft.com/cms/s/0/72a0044c-39ab-11e3-a3a4-00144feab7de.html#axzz2iJOHmRdl

8/13/2019 JP Morgan pays the price

2/2

;e recalled a deal done in //( when ;ank aulson( the then Secretary of the

+reasury( &ressured J !organ to &urchase Bear Stearns and Washington !utual(

which were about to go under.

In the next financial crisis, the JPMorgan of the future, the Jamie Dimon in

2020 or 2018, I think they say, this is your ro!lem " I#m not going to utmy !alance sheet at risk$%

Such s&eculation underlies the fact that with the banking syste' in the hands of

e of the fine certainly

sends out a strong 'essage.

+he 'essage has been heard by J !organ( who have &ut on an additional 3(///

co'&liance officers and &u'&ed 'ore than $1 billion into technology:related

co'&liance syste's in /13.

!ore significantly( the fact that the %e&art'ent of Justice has signalled that it

will not &rovide inde'nity against cri'inal action is likely to leave a lasting

i'&ression on Wall Street. +he =uestion now is( will ;older have the courage to

carry through with his threat( and will we see the sobering &icture of bankers

changing their ?r'ani suits for orange