JP Morgan Regulatory Fines Near $20bn In 12 Months

JP Morgan has been breaking dubious records recently as it pays the price for its role in the financial crisis and related scandals. Despite complaints of unfairness by CEO Jamie Dimon at the World Economic Forum in Davos, there is likely to be little public sympathy either here or in the US.

Over the last 12 months JP Morgan has faced a slew of legal claims from the US Justice Department and others which has resulted in record settlements being made by the bank. The latest is a $2bn agreement related to allegations against JP Morgan concerning Bernie Madoff’s Ponzi scheme.

A Marathon of Legal Claims, Costs and Regulatory Penalties

The last 12 month period has been gruelling for JP Morgan when it comes to counting the cost of litigation. Some of the headline-grabbing figures include:

· A $2bn agreement with regulators over allegations that the bank failed to report its suspicions that Bernie Madoff was involved in an illegal Ponzi scheme which arose during more than two decades that JP Morgan maintained accounts for Madoff Securities.

· A $4.5bn settlement in November 2013 which was made with 21 institutional investors for losses stemming from mortgage-related securities that the bank sold to them in the run up to the financial crisis.

· A record $13bn deal made in October 2013 with the US regulators to settle charges also related to the selling of mortgage-backed securities.

· Nearly $1bn in fines paid to US and UK regulators related to the ‘London Whale’ scandal which involved unusually large and aggressive derivatives transactions made in the Credit Default Swaps market through JP Morgan’s London office.

In agreeing to settle the various claims the bank has avoided the potentially greater reputational and financial costs of going to court.

Despite the magnitude of the various settlements, JP Morgan has denied wrongdoing in a number of cases and blamed some of the problems on legacy mortgage backed security dealings that took place at Bear Stearns and Washington Mutual; banks it took over during the financial crisis.

Comment

These huge financial settlements may have brought a degree of certainty to JP Morgan as a business by reducing its on-going exposure to civil liabilities. However, this is unlikely to be the end of JP Morgan’s woes when it comes to regulatory challenges – the bank is currently being investigated by US authorities for its hiring practices in China.

In addition, the settlements do not necessarily prevent criminal charges being brought against the bank or individual employees. The agreement over the Madoff case for example is known as a deferred prosecution agreement which only enables the bank to avoid criminal charges if it cooperates with authorities.

For specialist advice in relation to regulatory requirements, investigations or prosecutions contact James Crighton jcrighton@rollingsons.co.uk or telephone 0207 611 4848.