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Jamie Dimon Will Have His Comeuppance in 2012

The race for Treasury Secretary Tim Geithner’s replacement was a dead heat as recently as late last summer. Two financial services thoroughbreds – Jon Corzine and Jamie Dimon – were touted as equally likely candidates. Only a scratch or a spectacular mid-race collapse would disqualify either of them from serious contention.

The Treasury Secretary buzz for Jon Corzine was so strong MF Global juiced the bonds his comeback firm issued in August with special terms in the event he was selected. Investors would receive a higher interest rate if Corzine, viewed by the markets as indispensable to MF Global’s success, had to leave his Chairman, CEO, and (now we know) Chief European Sovereign Debt Trader position to serve the President.

Jamie Dimon, CEO of JP Morgan Chase, has successfully sustained the myth, even in the wake of new claims by mortgage bondholders, that his bank is “facing fewer mortgage problems than competitors,” according to The Wall Street Journal. Despite the fact that Bear Stearns/EMC and Washington Mutual –  originators, securitizers, and servicers JP Morgan Chase inherited during the crisis –  face huge amounts of litigation, Dimon’s charm has so far insulated his bank from the kind of investor skepticism plaguing Citigroup and Bank of America.

It’s not a stretch to imagine that Jon Corzine’s days as a wealthy free man may be numbered. The longer the mystery of the missing MF Global $1.2 billion goes on, the more we see him bob and weave in front of angry legislators, the more arrogant and entitled his excuses for knowing nothing sound, the more likely it is prosecutors will make him the poster boy for criminal prosecutions of Wall Street banksters.

Until recently Corzine was viewed as untouchable given his gold-plated, triple-crown of former titles – Senator, Governor, and Goldman Sachs CEO.  He has also been one of the Democratic Party’s and President Barack Obama’s staunchest political and financial supporters. Last month he made back-to-back appearances in the Senate and the House where, instead of pleading  the Fifth, he hemmed and hawed, neither admitting nor denying responsibility while claiming no knowledge of anything that went on at MF Global outside the range of his Blackberry and the Bloomberg screen.

Last week the rollback of support for Corzine from the Obama administration began. According to BusinessWeek, “Corzine was one of 41 donors who bundled more than $500,000 this year for Obama’s re-election effort, according to documents released by the campaign Oct. 14.” On Dec. 24 the magazine reported that President Obama’s re-election campaign returned $70,000 of Corzine’s personal campaign contributions.

So my first prediction is an easy one: This is the beginning of the end for Corzine. It’s gloves-off time. Look for an indictment by the Department of Justice’s Preet Bharara before the end of 2012 for criminal misappropriation of customer funds at MF Global.

My next prediction isn’t so obvious.

I think the Obama administration will pull Jamie Dimon down along with Jon Corzine.

They’ll do this to regain momentum with working-class voters—the 99%. Winning the November election, less than a year away, will require a significant show of prosecutorial force against banks and senior executives yet to be held accountable for the impact of the financial crisis on the middle class.

Jamie Dimon will have the misfortune, I believe, of catching a significant amount of fallout from the MF Global mess. As MF Global’s primary banker, JPMorgan Chase has been consistently accused in the media and by the attorney representing a customer coalition of taking advantage of the firm’s vulnerable financial state. Bloomberg News reported that the MF Global trustee said “certain” actions of JP Morgan Chase “are likely to be the subject of investigation.”

What JP Morgan Chase may have allowed – the use of customer funds to meet MF Global’s corporate obligations – is something JP Morgan was recently severely sanctioned for in the U.K. The bank’s London unit was fined a record 33.3 million pounds by the FSA, Britain’s financial regulator, for commingling client funds in its futures operation.

Dimon’s bank was also Bernie Madoff’s main bank. The trustee liquidating Madoff’s firm filed a revised lawsuit against the bank in June demanding a minimum of $19 billion in damages. JPMorgan Chase “was an active enabler of the Madoff Ponzi scheme,” The New York Times quoted David Sheehan, the attorney for Madoff bankruptcy trustee Irving Picard, as saying in June. The bank’s executives “not only should have known that a fraud was being perpetrated, they did know,” according to the statement from Sheehan.


In November a judge tossed out the claim against the bank, saying the trustee had no standing to bring claims on behalf of Madoff's clients. It could do this only for the bankrupt Madoff firm, the judge said. Picard, the trustee, plans to appeal because, as the Journal reported, the claims were reduced by billions. The trustee said he had “no choice but to appeal.”


In July, JP Morgan Chase agreed to pay $228 million in restitution and disgorgement in a settlement with  the U.S. Department of Justice in which the bank “admit[ted], acknowledge[d] and accept[ed] responsibility for illegal, anticompetitive conduct by its former employees ... from 2001 through 2006, [when] certain former JPMorgan employees at its municipal derivatives desk, entered into unlawful agreements to manipulate the bidding process and rig bids on municipal investment and related contracts.”

Financial crisis litigation chickens have also come home to roost for JP Morgan Chase. 

The bank and Jamie Dimon must answer to the OCC for faulty foreclosures related to the two firms picked up as a bargain during the crisis – Bear Stearns/EMC and Washington Mutual. As I write this, Deloitte, the former auditor to Bear Stearns and Washington Mutual, is the “independent” consultant reviewing the foreclosure process and working on an estimate of JPMorgan’s financial exposure to borrowers.

JP Morgan Chase is still subject to negotiations with the state attorneys general who are pursuing their own multibillion dollar settlement with the top mortgage servicers over foreclosures. The banks have yet to sign on to any final agreement and so the check is still blank.

In April, the bank agreed to pay $56 million to settle claims in a class action lawsuit brought by soldiers over improper foreclosures of military families’ homes. 

New York City Comptroller John C. Liu (who himself is under investigation over dubious campaign financing practices) and the NYC Pension Funds recently filed shareholder proposals calling on the boards of JP Morgan and two other financial services boards to “hold senior executives financially accountable for losses that result from excessive risk-taking or improper or unethical conduct.” JPMorgan has paid, according to the Comptroller, more than $100 million over the past 18 months to settle state or federal charges in connection with mortgage securities.

The Federal Housing Finance Agency, the conservator of Fannie Mae and Freddie Mac, filed suit in September against 17 domestic and foreign banks, including J.P. Morgan Chase. The banks “falsely represented” the quality of the loans that were bundled into securities and sold to investors and “significantly overstated the ability of the borrower to repay their mortgage loans,” FHFA was cited as claiming in The Washington Post. JPMorgan Chase faces claims for selling $33 billion worth of fraudulent securities to the GSEs.

There’s more MBS exposure for JP Morgan Chase, but perhaps the biggest mistake Dimon made came right before Christmas when he joined the ranks of the rich in denouncing protesters and those hostile toward the privileged 1%. Bloomberg reports: “Jamie Dimon, the highest-paid chief executive officer among the heads of the six biggest U.S. banks, turned a question at an investors’ conference in New York this month into an occasion to defend wealth.”

With everything Dimon and JP Morgan Chase are facing, lunching with guys like Stanley Marcus who refer to OWS protesters as “imbeciles” was not the smartest PR move.

Francine McKenna writes the blog re: The Auditors, about the Big Four accounting firms. She worked in consulting, professional services, accounting and financial management for more than 25 years.


(12) Comments



Comments (12)
So you think Dimon, Corzine, and Other Banksters Will Face (a) Hard Time in 2012? Creates an interesting scenario.
Posted by Lee Adler / The Wall Street Examiner | Sunday, May 13 2012 at 2:23PM ET

I perhaps did. I get it now. I don't believe Dimon is an "enemy" just a businessman that will be held accountable for the potentially immoral, unethical and illegal things his company is accused of and has already admitted.
Posted by Francine McKenna | Wednesday, January 11 2012 at 8:33PM ET
I promise this is my last comment on this matter. You perhaps misinterpreted some of my comments. I do agree with holding people accountable. I don't think Dimon is the enemy.
Posted by amyfahey | Wednesday, January 11 2012 at 10:12AM ET

Thanks for elaborating on the feelings and emotions that were driving your original comment. A column, by its nature, has limited space and has to be provocative to some extent to capture folks' attention. But I mean what I say about Corzine and Dimon because I think they have exploited the system at the expense of people like those in your family that are suffering. Please know that my intention is to shed light on topics that are misunderstood and underreported. You can count on me, the daughter of a retired Chicago fireman and first generation immigrant, to stand up for those who want an honest days' pay for an honest days' work and a level playing field for themselves and their children.
Posted by Francine McKenna | Tuesday, January 10 2012 at 12:05PM ET
My comments were not meant to insinuate in any way that things should be "swept under the carpet". There were mistakes made, many significant, that impacted a lot of people and we need to learn from them. But the list of parties responsible for those mistakes is much longer than big banks and the banking industry overall, including government, mortgage brokers, regulators, insurance companies, rating agencies, finance companies, GSEs, etc.

I see the bigger picture. I've read all the articles and I've read all the books. Believe me, as a banker, I also live it every day. I do agree that there's a requirement for close scrutiny on a lot of parties, the big banks only being one of them. Honestly, there rarely is an article or series of articles that clearly articulates all the responsible parties, including some accountability that the consumer should take. Some of these problems started 30 years ago and yes there were people that brought up issues that were ignored by that entire list of responsible parties not just big banks.

There's also rarely an article that talks about the $40bn the government made on the TARP program. While I recognize that money is fungible, as a tax-payer I'd like to know where that money is. There's rarely any recognition that the losses if any on TARP will most likely not be due to the banks. Was the bailout of AIG the right thing to do? Who knows. Was the bailout of the auto industry the right thing to do? Who knows.

All I know is my husband is still out of work, my brother is struggling to keep working, my sister has had her benefits cut and her hours reduced and I don't feel like anyone is working together to try and figure out how to move forward. Both sides of the isle seem to be more focused on outsmarting the other than on what's good for our country. Don't ignore the problems of the past, just have a balanced approach to what we do now.
Posted by amyfahey | Monday, January 09 2012 at 9:40AM ET
@AF and @Carmen B

Thanks for your comments. Actually, I was trying to give equal time to all big banks since I've written some very critical columns about Bank of America and Citigroup, in particular, here and in other places. While the media and short investors were picking at the carcasses of Citigroup and BAC, JPM and Wells Fargo have been doing business as usual. JPM is also facing additional lawsuits such as the one Lehman estate has against it and the investigation the CFTC has of JPM for cornering the silver market.

You may want to read my two columns about the foreclosure reviews that JPM and BAC, as well as the other major mortgage servicers, are facing. Those columns were cited by Congressional leaders and by those who testified before Congress. I think that's what you might call making an impact.

@Mike H and @Peter G
I see you guys can see the bigger picture. The largest banks require close scrutiny by their shareholders, their employees (don't forget the whistleblowers for Citigroup and Countrywide that were featured on the recent 60 Minutes segment), regulators, and Congress, as well as their customers. The low interest rate environment and the regulatory forbearance we've seen for the sake of "survival of the system" means the banks will be looking far and wide for ways to create profit and won't get much push back from regulators. Only the courts, exemplified by judges such as Rakoff, seem to be willing to hold both accountable.
Posted by Francine McKenna | Saturday, January 07 2012 at 7:15PM ET
So, AF and Carmen B., the slew of lawsuits that Francine cited (which likely represented the proverbial tip of the iceberg for JPM) are just to be swept under the rug because a few thousand employees didn't lose their jobs? Or because Dimon is such a wonderful leader? How do you reconcile charges of selling $33 billion in fraudulent securities, along with a whole host of additional alleged or confirmed frauds, with the notion that the CEO of the offending organization is the greatest thing since sliced bread? Do you recall his testimony before the FCIC a couple of years back, when the country was still teetering on the brink of financial Armageddon? He told the Commissioners the story of when his college-aged daughter asked him, "Daddy what's a financial crisis" His response:"Honey, it's just something that happens ever seven years or so"l.
Does this unconscionable arrogance and denial of any responsibility for destroying the financial system not bother you? Or anyone? If he takes that attitude to the Treasury Department, God help us all!
Posted by wcc101 | Friday, January 06 2012 at 6:18PM ET
You go the old Preacher said "a good message will make you mad, sad, or glad"...Amen..."yes children, the times they are a change'in"...All this was in an Audit Report that no one cared to read!!
Posted by Norman H | Friday, January 06 2012 at 4:17PM ET
Agree with AF. Here's a company that's done their best to weather the storm to keep as many people employed. Lets write smear articles about other companies doing likewise. Why not write an article and make a difference instead of tearing down.
Posted by Carmen B | Friday, January 06 2012 at 12:56PM ET
Comeuppance? Really? Why do we keep talking about how one guy can finally "get" another guy, how one guy will finally "get his"? Can't we instead focus on how Government and Corporate America can work together to improve our econimic situation and restore faith in the US? Wouldn't that be more productive.
Posted by amyfahey | Thursday, January 05 2012 at 12:18PM ET
@John R

Are you suggesting Dimon as a Presidential candidate in 2016? I'm not sure leader in the financial industry, if he is, translates to leader of the free world.
Posted by Francine McKenna | Thursday, January 05 2012 at 10:12AM ET
While BO is the President, his leadership qualities pale in comparison to Mr. Dimon's. The President plays gotcha games rather than seeking constructive ways to lead and create harmony among the elected officials of our Nation. In contrast, Mr. Dimon is recognized as a true leader in the financial industry with bona fide experience on which to base his decisions and positions.
Posted by John H. Roach, Jr. | Thursday, January 05 2012 at 9:12AM ET
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