Jeanine Skowronski

Receiving Wide Coverage ...JPM Ditches School: JPMorgan Chase is dropping out of the student loan business. The Journal calls the exit "the latest development in a larger push by JPMorgan to exit businesses it no longer dominates." The government, of course, is the dominant lender in this space, accounting for over 85% of the market. Wells Fargo now stands as the only big bank still making student loans, though Discover Financial Services has widened its student lending business over the last few years. JPM's decision gave the bank the opportunity to tell Reuters, which broke the news, that not making more loans "puts us in a position to redeploy those resources, as well as focus on our No. 1 priority, which is getting the regulatory control environment strengthened." As the Washington Post reminds readers, "in the past few months, the nation's largest bank has found itself entangled in litigation and investigations into a wide range of its businesses." JPM now joins Bank of America and Citi to be the subject of downsizing news this week. As previously scanned, B of A is selling its stake in China Construction Bank, while Citi has been steadily shedding its private-equity and hedge fund investments over the last month.

Receiving Wide Coverage ...A Probe Within a Probe: Just when you thought we would go a week without learning new details about JPMorgan Chase's regulatory troubles, reports surface that the nation's largest bank is currently being probed about possibly obstructing a probe. As it turns out, the Justice Department's criminal investigation into whether JPM manipulated U.S. energy markets (remember that one?) is really focused on whether the bank withheld information from regulators during the Federal Energy Regulatory Commission's investigation into the matter. JPM agreed to pay $410 million to settle FERC's allegations back in July. The bank didn't admit or deny wrongdoing as part of the settlement. Reuters, which broke the story, reports the DOJ decided to look into whether JPM had impeded that investigation, in part, due to a letter Sens. Elizabeth Warren, D-Mass, and Edward Markey, D-Mass, sent to FERC at the end of July. "The letter asked FERC about why it had allowed JPMorgan to settle the case without admitting wrongdoing and why no individual executives faced regulatory action," the article notes. "[It] also asked FERC why no action was taken against people who 'impeded the Commission's investigations.'" JPM has previously denied that employees lied during the FERC probe. Bloomberg columnist Jonathan Weil argues that little will come from the DOJ's new investigation. "It's unlikely that the government would ever prosecute JPMorgan, for obstruction or anything else, because it's too big to fail," he writes. "If the energy regulator couldn't see fit to file claims against any individuals, it's difficult to imagine the Justice Department would press criminal charges against them later." Meanwhile, the Journal reminds readers: "The Justice Department has at least seven other investigations of [JPM] in the works."

Receiving Wide Coverage ...S&P vs. DOJ, Retaliation Edition: Well, this is an interesting tactic. Standard & Poor's is arguing that the federal government is suing the firm in retaliation for stripping the U.S. of its AAA credit rating back in 2011. Per S&P's latest court filing, "the government's 'impermissibly selective, punitive and meritless' lawsuit was brought 'in retaliation for defendants' exercise of their free-speech rights with respect to the creditworthiness of the United States of America,'" the Times reports. Scan readers will recall that the U.S. Department of Justice filed civil charges against the credit rating agency back in February for allegedly ignoring their own standards and rating mortgage investments much higher than they should have been in years leading up to the financial crisis. A spokeswoman for the DOJ told the Journal the retaliation allegation was preposterous. Lawyers tell the paper making the claim stick will be "an uphill battle" as S&P would need "to prove that there was direct communication between different government agencies and to indicate any such goal, as of the alleged retaliation by the government." The FT reports that S&P's lawyers "have demanded, and been granted, permission to collect documents and emails from government departments and agencies relating to the DOJ's decision to launch the lawsuit." Tuesday's court filing cites a total of 19 defenses to the government's allegations. Among them, S&P argued that even Federal Reserve Chairman Ben Bernanke (who has previously been attached to civil crisis-related cases) and then-Treasury Secretary Hank Paulson didn't anticipate how serious the crisis was, prior to it actually happening. S&P has argued in previous court filings that certain assurances it made about the objectivity of its ratings process constitute "classic puffery" — the vague and overblown language that businesses often use to describe the virtues of their products and services — which is also an interesting tactic, given the firm's business model.

Receiving Wide Coverage ...Downsizing: Bank of America is selling its stake in China Construction Bank for up to $1.5 billion, reports the Journal, which obtained a term sheet on the deal. The bank has yet to comment on the reason for the sale, but the article notes "market experts remain wary about Chinese banks' asset quality after a huge credit boom in China aimed at stimulating the country's economy in the last few years." Bank of America isn't the only big bank scaling back. The Journal also reports that last week Citigroup sold Citi Venture Capital International, a $4.3 billion private-equity fund, for an undisclosed price to private-equity fund Rohatyn Group. The paper estimates Citi has shed more than $6 billion in alternative investments over the last month and anonymice say the big bank is also looking to sell its remaining hedge fund to those that manage it. "The moves reflect a decision by Citigroup to shed its private-equity and hedge funds in the wake of new regulations that restrict banks' holdings of alternative investments," the paper reports before name-dropping the yet-to-be-finalized Volcker Rule, which, among other things, prohibits banks from investing in funds they don't manage.

Breaking News This Morning ...Arrest in 'London Whale' Case: Javier Martin-Artajo, former JPMorgan Chase employee and "London Whale" supervisor, was arrested Tuesday in Madrid after turning himself in to Spanish police. Martin-Artajo is one of two former JPM traders facing criminal charges filed by U.S. prosecutors over the bank's $6 billion trading debacle. Julien Grout, the other trader charged, has yet to be arrested. Wall Street Journal, Reuters

Receiving Wide Coverage ...Nasdaq Outage: The Nasdaq stock exchange went down for three hours on Thursday, after a technical glitch caused connectivity issues and interrupted its ability to quote prices. The failure "delivered another black eye to Nasdaq, which was bruised by last year's botched initial public offering of Facebook," reports the Journal. This incident, coupled with Goldman's rogue computer problems from earlier this week, has also raised new questions about the high-speed, computerized structure of our financial markets. "While regulators and market participants have taken several steps to strengthen their systems, the problems this week suggest that the flaws in the markets have not been repaired, and may actually be getting worse," Dealbook notes. Perhaps not-so-surprisingly, the Journal is reporting that the Commodity Futures Trading Commission is moving to rein in high-speed trading by developing a road map it can use to develop rules for the practice. "The road map, which must be approved by the commission before it is officially released, could pave the way for more direct scrutiny of such activities," one agency commissioner tells the paper. Back in March, the Securities and Exchange Commission proposed rules intended to prevent these types of technical snafus, but the exchanges have fought against them. In a statement following the Nasdaq meltdown, SEC chairman Mary Jo White said she would move to have the proposal approved. Washington Post, Financial Times

Receiving Wide Coverage ...More Mortgage Job Cuts: Wells Fargo says it plans to cut 2,300 mortgage-related jobs nationwide. The FT calls the cuts, which are the third and largest wave of mortgage-related layoffs Wells has announced this year, "part of a renewed push by John Stumpf, chief executive, to cut Wells' overall costs to help offset lower mortgage lending and falling profit margins." The Journal suggests the news is ominous. "The job cuts highlight the bank's belief that the mortgage market is headed for a dive," the paper notes. "Other banks could soon follow." Both Bank of America and Citigroup are among lenders who have already announced cutbacks at their mortgage units this year.

Receiving Wide Coverage ...Enforcement-Palooza: JPMorgan Chase may not be the only bank facing impending enforcement action. In an interview with the Wall Street Journal, U.S. Attorney General Eric Holder promised more cases — or "a series of significant matters" — related to the economic meltdown are on the way. Holder also dropped this sound bite during the interview (when asked, incidentally, about JPM): "No individual, no company is above the law. We don't investigate companies based on who a CEO is, but we don't avoid investigating companies based on who the CEO is, either." How much of a continuing about-face this represents for Holder, who essentially told lawmakers back in March that some banks were, in fact, too big to jail, is unclear. The AG offered few specifics about what "significant matters" the Justice Department had in the pipeline, including whether any prospective crisis-related cases would be criminal or civil. Meanwhile, the Securities and Exchange Commission continues to flex its enforcement muscles. Just yesterday, news broke that the regulator required hedge fund manager Philip Falcone to admit guilt as part of a settlement over market manipulation allegations. (Legal specialists tell the Journal this settlement "could become a model for future deals.") Now, the regulator has charged a former portfolio manager at Oppenheimer & Company with misleading investors, which Dealbook calls "a rare enforcement action involving the private equity industry."

Receiving Wide Coverage ...JPM Déjà vu: JPMorgan Chase is having a hard time getting through the day without news of a probe surfacing. Following reports that the Securities and Exchange Commission was investigating whether the bank routinely hired the children of well-connected families in China, anony-mice told the Journal and, later, the FT that the Justice Department is now looking into whether JPM manipulated U.S. energy markets. Scan readers will recall that the bank agreed to pay $410 million to the Federal Energy Regulatory Commission as part of a civil settlement over energy market manipulations just last month. JPM "didn't admit to wrongdoing as part of the settlement," the Journal makes a point of noting. "It did name Blythe Masters, the bank's head of commodities, three times in the filing," the FT adds. JPM, Masters and the DOJ have yet to formally comment on the new probe. Several pundits, however, are weighing in on the recently unveiled China investigation. Both a Journal article and a Dealbook op-ed from Andrew Ross Sorkin suggest, to varying degrees, that nepotism isn't always a crime. "Given that many of the children of the elite have some of the best educations and thriving networks of contacts, it is hard to see how businesses are supposed to not seek them out, let alone turn them away," Sorkin argues. Meanwhile, the FT's Patrick Jenkins writes that while it remains unclear whether JPM committed any wrongdoing, cultural traditions cannot be used as an excuse for rule-breaking. "Regulators in China and Qatar should be rooting out wrongdoing as eagerly as western authorities — in the interest of both the banks and the future appeal of the markets themselves," he writes.

Receiving Wide Coverage ...JPM's Woes Grow … Again: The hits just keep on coming over at JPMorgan Chase. The nation's biggest bank disclosed in a regulatory filing that the Securities and Exchange Commission is investigating its hiring practices in China. "Authorities suspect that JPMorgan routinely hired young associates who hailed from well-connected Chinese families that ultimately offered the bank business," explains the Times, which first reported on the filing. The bank told several news outlets it is fully cooperating with regulators regarding the investigation. The SEC is declining to comment. The FT notes that the investigation could "cause consternation" for more than just JPM. "In their rush to capitalize on China's economic growth, virtually all the big Wall Street and European financial institutions with operations in the country have habitually hired … the children of senior Chinese officials," the paper notes. Meanwhile, the Journal estimates that JPM's growing regulatory problems could cause the bank to "absorb $6.8 billion in future legal losses above its existing reserves" then drops this factoid: "The numbers put JPMorgan on pace to supplant Bank of America as the big lender with the most legal problems."

Receiving Wide Coverage ...JPM Under Fire: JPMorgan Chase disclosed in a filing on Wednesday that the U.S. Justice Department has opened up a criminal and civil probe into its sale of mortgage-backed securities leading up to the crisis. Per the filing, investigators have "preliminarily concluded that the firm violated certain federal securities laws" while selling subprime mortgage securities to investors. Both JPM and the DOJ are declining to comment further at this time. News outlet say the investigation is powered by President Obama's federal mortgage task force, announced back in January 2012. Per the Washington Post, "the investigation is the latest sign that federal prosecutors and regulators are not letting up in their efforts to hold Wall Street accountable for actions related to the crisis," which, yes, conflicts, with a Journal report from earlier this week that suggested the SEC, at least, was losing steam when it came to crisis-related investigations. The Journal's more recent article on JPM's latest woes calls the DOJ's potential action against the bank "another illustration of how regulators and government investigators are still working through a backlog of cases focused on banks' activities during the housing downturn and financial crisis." (Scan readers will recall that on Tuesday federal prosecutors filed civil actions against Bank of America for alleging misleading mortgage-backed securities investors in 2008.) The Journal also notes the potential penalties "open up a new set of problems for JPMorgan, a bank already operating under four enforcement actions, more than any other big U.S. bank." Dealbook concurs: "Once a darling in regulatory circles, JPMorgan has become a magnet for scrutiny in recent years, drawing attention from at least eight federal agencies, a state regulator and two European nations."

Receiving Wide Coverage ...Sued: Well, we know this was coming — The U.S. Justice Department and the Securities and Exchange Commission filed parallel civil lawsuits on Tuesday, alleging Bank of America misled investors about the quality of $850 million in mortgage-backed securities sold in the lead up to the financial crisis. Important to note: the case deals with prime jumbo mortgages that were securitized and sold by B of A, not its much-maligned acquisition Countrywide. The bank plans to fight the charges. Per a spokesperson's statement to various news outlets, "these were prime mortgages sold to sophisticated investors who had ample access to the underlying data and we will demonstrate that." The case represents the latest mortgage-related woes for Bank of America, which, for instance, reached an $8.5 billion settlement with mortgage-backed securities investors in June 2011 that is currently pending approval. But a Dealbook article on the latest action ends with this note: "While the accusations add to the pressure on Bank of America, which has been working to move past the crisis, previous government lawsuits against it that began with much fanfare have lost some of their momentum." Wall Street Journal, Washington Post

Receiving Wide Coverage ...More Mortgage Woes for B of A? Bank of America has disclosed that the Justice Department intends to file civil charges against the bank over claims it mishandled "one or two jumbo prime securitizations." The Securities and Exchange Commission is also weighing civil charges related to how B of A brokerage house Merrill Lynch handled its securities and the New York Attorney General's office is recommending action against Merrill Lynch over residential mortgage-backed securities. The Journal calls the disclosures "the latest sign that banks' battle to contain the high cost of the financial crisis continues to escalate, despite a five-year slog of lawsuits, losses and profit-sapping regulations." New York Times, Financial Times

Receiving Wide Coverage ...Sideswiped: A federal judge has overturned the Federal Reserve's rule on debit card swipe fee caps, effectively stating that the central bank had set the caps too high. In the decision, the judge said the Fed's rule, which caps fees charged to merchants whenever a customer uses a debit card at 21-cents a transaction, "runs completely afoul of the text, design and purpose" of the Durbin amendment, the Dodd-Frank provision that called for the fee limits in the first place. "The decision likely will force the Fed to slash the fees, further crimping a once-lucrative business for banks and card giants," the Journal notes. But changes won't be immediate. The judge plans to give the Fed some time to develop new rules (the exact length to be determined at a later date, though he did say the process should take "months, not years") and the central bank may appeal the ruling. No word yet on whether or not it will. A spokeswoman for the Fed told a few news outlets that the central bank is reviewing the judge's decision. The Washington Post cites Guggenheim Partners' prediction that "the current fees will remain in place through 2014 or even longer." The decision is the latest instance in which a legal ruling has caused delays for regulators trying to enforce provisions of Dodd-Frank, but it is a bit unique. "Courts have struck down other aspects of the financial overhaul, but in ways that favor banks," the Times notes. "The fight over debit card fees pits the powerful industries of retailing and banking against each other."

Receiving Wide Coverage ...JPM, FERC Update: Very shortly after yesterday's Scan, JPMorgan Chase, as predicted, formally settled with the Federal Energy Regulatory Commission over energy market manipulation allegations. Kudos to the Journal for nailing the amount of the fine associated with the widely anticipated settlement in an earlier report on the matter: $410 million. Dealbreaker, however, gets the credit for best explanation of the settlement agreement. A choice quote from the blog post by Matt Levine: "FERC built a terrible box, and the box had some buttons that were labeled 'push here for money,' and JPMorgan pushed them and got money." JPM didn't admit or deny any violations as part of the settlement and individual traders, including commodities head Blythe Masters, were exempt from separate punishment. The bank's official statement on the matter, per the FT: "We're pleased that this matter is behind us. Due to reserves previously set aside, this settlement will have no material impact on earnings." Meanwhile, the Times' Dealbook predicts JPM will pay to settle further U.S. inquiries. "Its new and conciliatory approach — a departure for the bank and its leader, Jamie Dimon, who generally has taken a hard line with the authorities — is yielding mixed results," the article notes. "Government officials, stung by the bank's past displays of hubris, may drive up the price of settlements or resist the overtures altogether."

Receiving Wide Coverage ...JPM Energy-Market Allegations: The Federal Energy Regulatory Commission released a two-page document on Monday, detailing its (already widely reported) accusations against JPMorgan Chase for energy-market manipulation. Per the Journal, "the document describes several trading schemes, including submitting bids that 'falsely appeared' attractive to electricity-system operators and led to payments to the bank valued at 'tens of millions of dollars at rates far above market prices.'" The FT notes the allegations "echo the electricity-market manipulation schemes perpetrated by Enron, the bankrupt energy company." The allegations are expected to precede a formal settlement announcement, which could come essentially any minute now. Papers must be talking to different anonymice because estimates of the settlement's cost vary. The Journal pegs the associated fine to be "roughly $410 million." Dealbook says the settlement "could cost the bank as much as $500 million" and the FT estimates the settlement to be "about $400 million", which would be lower than the fine FERC levied against Barclays earlier this month. JPM was declining to comment on the allegations on Monday. American Banker readers will recall the bank announced plans on Friday to sell or spin off its physical commodities unit, ahead of increasing regulatory scrutiny.

Receiving Wide Coverage ...Targeting Barclays: The U.K. Treasury is expected to give the "cash-strapped' Serious Fraud Office £2 million in special "blockbuster" funding so that it can continue a probe into Barclays' fundraising efforts five years ago, the FT reports. "The SFO's director, David Green, negotiated a similar arrangement for the agency's sprawling investigation into Libor manipulation, in which Barclays is also a target," the paper notes. Regulators have been looking into "certain commercial arrangements" the bank made with Qatar Holdings back in 2008, but the funding seems to indicate the probe is "escalating". Barclays declined to comment on the investigation. Meanwhile, the bank did say that it would "update the market" as to how it plans to fill a capital gap during its earnings call on Tuesday. Anonymice previously told the Journal and the FT that the bank was considering issuing fresh equity and selling convertible bonds, among other things, to meet its estimated £7 billion shortfall.

Receiving Wide Coverage ...U.S. Versus SAC, Tourre: Papers remain focused on the ongoing civil trial of former Goldman Sachs trader Fabrice Tourre and the expected insider trading criminal charges against hedge-fund giant SAC Capital Advisors, which could be filed any minute now. Dealbook's latest article on the SAC charges says "the marshaled might of law enforcement," which includes representatives from the Securities and Exchange Commission, the FBI, postal inspectors and the Justice Department, "signaled that the government was no longer interested in just monetary settlements." And the Journal echoes a sentiment from an earlier Times article: the charges could mean the end of SAC. "No major financial firm has survived a criminal indictment," the paper notes. As for the Tourre trial, the sometimes "Fabulous", sometimes "Breezy" former trader took the stand for the first time Wednesday. Per Dealbook, "Tourre seemed exasperated on the stand, and at one point during the questioning, tipped over the water container on the witness stand while reaching for a document." He also admitted that an email he sent to a key player in the investment deal at the heart of the case was "not accurate," which, based on some verbal sparring that took place between him and the prosecutor, is apparently different from being "false." Legal experts tell the Washington Post that Tourre's testimony, expected to continue today, "could make or break his case."

Receiving Wide Coverage ...Here Come the Regulators: A few Times articles echo a sentiment the FT's Tom Braithwaite alluded to earlier this week: A healthy earnings season may serve as the go-ahead for more big bank regulation in the U.S. "In recent weeks, the Treasury Department, senior regulators and members of Congress have stepped up efforts intended to make the largest banks safer," a Dealbook article notes. "The banks have warned that more regulation could undermine their ability to compete and curtail the amount of money they have to lend, but the strong earnings that came out over the last week could undercut their argument." Economist Simon Johnson believes that high profits signal danger for the megabanks. "In Europe, regulation remains weak, and the banks are floundering," he writes in a Times column. "In the United States, the rules are tightening, and the big banks are doing great. Once American politicians and regulators reflect further on exactly why the banks have become so profitable, this will only reinforce the latest push for more reform." Elsewhere, the Journal profiles the Federal Energy Regulatory Commission, which slapped Barclays with a big fine for alleged energy market manipulation earlier this week and is currently negotiating a settlement in a similar case against JPMorgan Chase. "Some people familiar with its enforcement operations think the commission is just getting started as it scrutinizes the once obscure world of electricity trading," the paper reports. Dealbook, meanwhile, notes that the industry-financed Financial Industry Regulatory Authority is moving to determine whether high-frequency trading firms pose a threat to the stability of financial markets. Finra "sent letters to 10 high-speed trading firms this week, asking them for more information about their trading programs and the steps they have in place to avert 'market disruptions,'" the paper reports.

Breaking News This Morning ...Morgan Stanley Earnings: Morgan Stanley's profit rose 66% in the second quarter due largely to strong trading revenue. The firm also announced it is buying back $500 million worth of its own stock. Wall Street Journal, New York Times