Receiving Wide Coverage ...
Jamie in the Hot Seat: When the nation's two most influential dailies simultaneously run stories in which federal authorities leak word that they're gunning for a megabank, it ain't no tempest in a teapot. That's the reality JPMorgan Chase's (JPM) Jamie Dimon woke up to this morning as the New York Times and Wall Street Journal published features quoting flies on the wall who describe meetings where government officials told the bank's top managers they're in a world of regulatory hurt. During a mid-April get-together, officials from the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York told Dimon, his fellow directors and certain members of his operating committee that they don't trust management, the Journal reports, citing "people familiar with the meeting." Both publications also report that JPMorgan Chase is in hot water with the Federal Energy Regulatory Commission, which has served it with a Wells notice accusing the bank and a Houston-based energy trading team of misrepresenting prices and overcharging California and Michigan for electricity (only the very young could miss the echoes of Enron.) Citing a confidential government document that was presented to the bank in March, the Times reports that the feds have concluded JPMorgan Chase devised "manipulative schemes" that transformed "money-losing power plants into powerful profit centers." Among the government's claims are that Blythe Masters, the bank's global commodities boss, gave "false and misleading statements" under oath. The bank disputed the allegations in a statement and said that no one lied under oath, according to the Journal. The claims that the bank engaged in fraud in the energy market come as regulators are looking into other areas where JPMorgan Chase is suspected of wrongdoing. The OCC is considering enforcement action over how it collected credit card debt (an area that over a year ago American Banker reported the OCC was scrutinizing. Authorities are also looking into the bank's possible failure to alert them of suspicions that Bernie Madoff was running a Ponzi scheme, the Times reports, citing "people who were not authorized to discuss the cases publicly." The mounting troubles come at a difficult time for Dimon. His lieutenants have been departing at a fast clip, and his credibility in Washington has been undermined by the London Whale trading losses, which also prompted his own board to cut his 2012 pay. On May 21, Dimon will face JPMorgan Chase shareholders and the results of a vote on whether he should retain both the chairman and chief executive titles. It's a humbling turn of events from just a year ago, notes the Journal, when Dimon was regarded as "the king of Wall Street." Wall Street Journal, New York Times
Talk About Chutzpah: First SAC Capital Advisors' boss thumbs his nose at law enforcers by going out and acquiring high-profile art works and Hamptons real estate while wrapping up a record civil fraud settlement. Now come reports that Steven Cohen's hedge fund has sent a letter to outside investors—who have yanked $1.7 billion so far this year—belatedly announcing it will claw back pay from employees who are proven to be criminals. The wily Cohen's letter comes ahead of a deadline later this month for investors to withdraw additional funds, notes the Financial Times. Clawbacks are becoming increasingly popular on Wall Street as regulators toughen rules for their use under the Dodd-Frank Act. What makes SAC's use of clawbacks so rich is that just two months ago it paid an unprecedented $616 million civil settlement to the Securities and Exchange Commission to dispense with allegations that, among other things, it profited when one of its funds, CR Intrinsic Investors, "participated in an insider trading scheme." (Taken to its logical end, that raises a curious question: Can Cohen claw back pay from himself?) Now, it turns out, "if an employee is accused of wrongdoing and leaves the fund, SAC will hold back any deferred compensation. If the employee is convicted or subject to other sanctions, that compensation will not be paid," Cohen told investors, according to the Times. No hypothetical musings these: "All told, at least nine current or former SAC employees have been tied to insider trading while at the fund; four have pleaded guilty," the Times says. By the Journal's count, "six former SAC employees have been convicted in criminal cases or pleaded guilty to insider-trading charges; four of those are cooperating with authorities." Prosecutors and the Federal Bureau of Investigation are pursuing criminal investigations into whether the hedge fund and Cohen traded on inside information, it adds. New York Times, Wall Street Journal, Financial Times
Wall Street Journal
The Securities and Exchange Commission is considering a scaled-back approach to overseeing the $2.6 trillion money market mutual fund industry, which is seen as posing a systemic risk due to the danger that it is vulnerable to investor runs. The latest approach is one of several the SEC has contemplated and would require only the riskiest "prime" funds to abandon their fixed $1 share price and allow shares to float in value like other mutual funds. Such a move would be a win for the politically powerful fund industry, which balked at previous efforts to require money managers to float all of fund share prices or post bank-like capital. That plan was abandoned by former chairman Mary Schapiro when she was unable to secure the votes necessary for passage.
The Consumer Financial Protection Bureau has sent out subpoenas to auto lenders over the sale of extended warranties and other financial products, the Journal reports, citing people familiar with the investigation. The move expands on a civil probe that lenders say could slow the booming car-loan industry. The add-on products include extra insurance, and are popular among car dealers as a way to boost profits.
Mortgage giants Fannie Mae and Freddie Mac have been ramping up trading in the commercial mortgages that developers use to build or buy apartment blocks, prompting think-tanks to warn that cheap money may be driving up the price of developments and setting the stage for another housing crash. The question of what to do with Fannie and Freddie's commercial mortgage businesses is about to soar up the political agenda with the imminent publication of internal discussion papers about whether these divisions can be privatized, the FT reports. Meanwhile strong forces are lining up to prevent such an outcome, including politicians worried they'll be accused of pushing up rents, lenders who love the cheap finance, and investors who are addicted to Fannie and Freddie's government-guaranteed securities.
New York Times
Robert E. Diamond Jr., the ousted former chief executive of Barclays is living the proletariat life in Manhattan these days, commuting by subway and working out of a "sparse office" in Midtown's Seagram Building. That's according to a long profile in which Andrew Ross Sorkin slums around with the repatriated American banker, who was credited with transforming the British business before taking what the author describes as "a pretty spectacular fall" due to his bank's involvement in the Libor rate-rigging scandal. "The unacceptable face of banking" is how one British Parliamentarian described Diamond. "It's hard for me to talk about it," Diamond says of his setbacks. "I've tried to move on."