JPMorgan Chase faces Growing Legal Problems
DAVID GREENE, HOST:
This is MORNING EDITION from NPR News. I'm David Greene.
RENEE MONTAGNE, HOST:
And I'm Renee Montagne.
The nation's most profitable bank, JPMorgan Chase, is facing a growing list of legal problems. The Wall Street Journal reported late yesterday that the Justice Department is investigating the bank over improper energy trading. That follows on the heels of news that the anti-bribery unit of the SEC is looking into whether JP Morgan hired the children of Chinese officials as a way of winning business.
NPR's Chris Arnold reports that's just what's come out in the last couple of days.
CHRIS ARNOLD, BYLINE: In a recent filing with the SEC, JP Morgan tallied up the legal challenges it's facing and the list goes on for page after page. The Justice Department alone has six or now it looks like seven different probes underway, including a criminal investigation related to bad mortgages. Yesterday, financial news outlets like CNBC were all talking about the Chinese hiring probe, and what the price-tag for all these entanglements might be
(SOUNDBITE OF NEWS BROADCAST)
UNIDENTIFIED WOMAN: JPMorgan has said it could face fines up to $6.8 billion above what it's set aside for its legal reserves. That is more than any other bank...
ARNOLD: There was also that embarrassing so-called London whale debacle, where some London-based traders covered up big losses.
JPMorgan says it's cooperating with regulators. But just how much is all this actually hurting the bank? In recent years, JPMorgan came to be talked about as the best-run big U.S. bank, led by its charismatic CEO, Jamie Dimon.
JOHN MASON: Yeah, it takes a little sparkle off the diamond.
ARNOLD: That's John Mason, a former CEO and CFO of several small and regional banks. He now writes a column for the financial blog Seeking Alpha.
MASON: It takes a little sparkle away. But I think it is a very well-run organization. And by and large it sticks to the law. And I think it will pull back from this and continue to perform well.
ARNOLD: Mason acknowledges that a huge bank like JP Morgan, with operations all over the world, is inherently hard to manage. A rogue trader in London, an investigation in China, energy trading. The city of Milan, Italy even sued JPMorgan a while back over an allegedly improper bond issuance.
MASON: You have very severe question about controlling everything that you have going on. That is a problem with large institutions.
ARNOLD: But critics of JPMorgan say you can't hide behind that if you're Jamie Dimon. William Black is a professor of Economics and Law at the University of Missouri Kansas City.
WILLIAM BLACK: These things come from the top leadership. You can't have this many scandals without a complete failure to set the appropriate ethical tone at the top of the organization. And that is clearly on Jamie Dimon.
ARNOLD: Black says all the big banks who played a role in the financial crisis are too driven by short-term profits, and he says that's a shared leadership flaw. And he thinks across the industry there was plenty of fraud going on and that the banks have gotten off easy. Black was a federal regulator after the savings and loan debacle in the 1980s and he says back then there was a more robust effort to prosecute executives.
Still, JP Morgan certainly has its defenders. Dick Bove is a bank analyst at Rafferty Capital Markets.
DICK BOVE: Is JPMorgan a well-run bank or not? In other words, we constantly hear this statement that it's too big to be managed. Alright, JPMorgan makes more money than any other bank in the world, other than the four big Chinese banks, and its also making more money than 99.99 percent of the companies that function in the United States.
ARNOLD: Bove says that suggests that the bank is being run pretty darn well. But whereas John Mason thinks that all these lawsuits probably won't hurt the JPMorgan in the long run, Bove thinks that they have already.
BOVE: Yes, I do. I believe it's hurt the stock. I believe it's causing questions in the minds of customers of the company.
ARNOLD: And Bove thinks at least some top financial talent might be going over to lower profile firms where they're less likely to become part of an FBI investigation.
Chris Arnold, NPR News.