JPMorgan to pay $13 billion fine

The biggest business story of the weekend was JPMorgan Chase’s agreement to pay $13 billion fine to settle civil investigations into the bank’s mortgage practices.

The New York Times had these details:

JPMorgan Chase and the Justice Department have reached a tentative $13 billion settlement over the bank’s questionable mortgage practices leading up to the financial crisis, people briefed on the talks said on Saturday. It would be a record penalty that would cap weeks of heated negotiating and underscore the extent of the bank’s legal woes.

The deal, which the Justice Department took the lead in negotiating and which came together after a Friday night call involving Attorney General Eric H. Holder Jr. and JPMorgan’s chief executive, Jamie Dimon, would resolve an array of state and federal investigations into the bank’s sale of troubled mortgage investments. That type of investment, securities typically backed by subprime home loans, was at the heart of the financial crisis.

While the deal would put those civil cases to rest, it would not save JPMorgan from a parallel criminal inquiry from federal prosecutors in California, the people briefed on the talks said. Under the terms of the preliminary deal, the people said, the bank would also have to assist prosecutors with an investigation into former employees who helped create the mortgage investments.

Bloomberg added these details about where the money would go and how much of the firm’s profit it would take to pay the fine:

The payouts would cover a $4 billion accord with the Federal Housing Finance Agency over the bank’s sale of mortgage-backed securities, that person said. The deal, which may be announced in the coming week, also resolves pending inquiries by New York Attorney General Eric Schneiderman, the people said.

The settlement would amount to more than half of JPMorgan’s record $21.3 billion profit last year, or 1.5 times what the firm’s corporate and investment bank set aside to pay employees during this year’s first nine months. Only seven companies in the Dow Jones Industrial Average earned more than $13 billion in 2012, according to data compiled by Bloomberg. Some portions of the deal, such as relief to homeowners, would probably be tax deductible for JPMorgan.

The outline of the tentative accord was reached during a telephone call between Holder, Dimon, JPMorgan General Counsel Stephen Cutler and Associate U.S. Attorney General Tony West, said the person. The settlement’s statement of facts is still being negotiated.

The Wall Street Journal wrote an interesting sidebar about Jamie Dimon’s relationship with regulators and his reputation in Washington:

To win back Washington’s trust, Mr. Dimon is holding frequent meetings with the bank’s lead examiners at the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, and is striking a much more conciliatory tone than he has in the past, according to government and bank officials. In May, Mr. Dimon began hosting “town halls” for Fed, OCC and FDIC examiners—many of whom rarely interact with the CEO—so they could ask questions and raise concerns. The bank has sent letters reminding employees to provide timely and accurate information to regulators.

“Building and maintaining an open and transparent culture with our regulators, and ensuring that we are responsive and that the information we provide them is complete and accurate at all times is critical,” Mr. Dimon and other top executives on the bank’s operating committee wrote in an internal email sent to employees on June 20 and reviewed by The Wall Street Journal.

The bank has been quick to announce plans to jettison or scale back businesses that have raised regulatory concerns, including its physical commodities trading business and its dealings with overseas banks. In July, Mr. Dimon agreed to step down as chairman of the company’s main banking subsidiary after the OCC said it preferred that he no longer hold those duties, according to people familiar with the matter. He still holds the CEO and Chairman titles for the parent company.

J.P. Morgan also has continued to spend heavily on Washington lobbying, hitting $8 million in 2012, a record for the bank, according to the Center for Responsive Politics. That was up from $7.6 million in 2011 and well ahead of its closest peer, Wells Fargo & Co., which spent $6.8 million in 2012. So far this year, J.P. Morgan has the third highest lobbying tab of $2.5 million, behind Wells Fargo’s $2.9 million and Citigroup Inc.’s $2.7 million.

Whether such moves will speed the bank past its current troubles is unclear. While Mr. Dimon is described as “much more humble” by regulators who have met with him recently, the bank and its representatives have continued to haggle over rules related to the 2010 Dodd-Frank law and the exact conduct for which it is willing to acknowledge regulatory wrongdoing, according to people familiar with the discussions. Negotiations with the Justice Department failed to produce a deal to resolve potential criminal charges against the bank or its employees after J.P. Morgan refused to an admission of wrongdoing that would end the criminal probe, people familiar with the matter said.

It will be interesting to see how these fines will affect the rest of the industry and if regulators will levy proportional penalties at other firms. After getting through the financial crisis with its reputation in-tack, it must be difficult to see the headlines chipping away.

(Disclosure: I worked at JPMC for two years and continue to do contract work for the firm.)