JPM Misses, Wells Hits, Data Bleeds

Breaking News This Morning ...

1Q Earnings: JPMorgan sharply down (NYT, WSJ), Wells Fargo sharply up (NYT, WSJ).

Receiving Wide Coverage ...

Fake Bankers?: Bankers were told by regulators on Thursday to upgrade systems in use to protect customer information. The warning involves the Heartbleed security flaw and came from a group of regulators acting as the Federal Financial Institutions Examination Council, the Times reports. Members include the Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. "Attackers could potentially impersonate bank services or users, steal login credentials, access sensitive email or gain access to internal networks," the regulators said in a statement, according to the FT. Heartbleed is a flaw in a security measure known as OpenSSL that is used by many on-line banking and retail websites, the Times reports. OpenSSL is designed to encrypt data and keep it safe from intruders seeking bank routing and credit card numbers and other confidential information. Regulators said in their warning that banks should make sure third-party vendors are fixing the problem and then "strongly consider requiring" users and administrators to change their passwords. "Financial institutions should operate with the assumption that encryption keys used on vulnerable servers are no longer viable for protecting sensitive information,'' the alert said. The Heartbleed problem was first discovered by a team of security experts and researchers last week and disclosed on Monday, according to the New York Times. By Tuesday, a number of large websites, including Yahoo, Facebook, Google and Amazon Web Services, said they were fixing the problem or had already fixed it. The banking regulators said the Heartbleed vulnerability has existed since Dec. 31, 2011. Financial Times, New York Times

Stevie-Sized Wrist-Slap: Scandal-plagued hedge fund boss Steven A. Cohen will be writing a very large check, but it's unlikely to crimp the billionaire's lifestyle. That's the gist of a ruling by a federal judge on Thursday approving a plea deal that enables Cohen's firm, Point72 Asset Management (formerly SAC Capital) to resolve criminal insider trading charges by paying a $1.2 billion penalty. "The defendants committed very serious financial crimes...clearly motivated by greed," Judge Laura Taylor Swain of the Federal District Court in Manhattan said in accepting the firm's guilty plea. Cohen and his top managers "ignored blatant red flags" and "rewarded this illegal behavior," she added. Even so, Cohen will be permitted to continue managing about $9 billion of his own fortune from the same offices as before. His Point72 Asset Management will no longer manage outsider's money. Many Cohen underlings have taken far bigger lifestyle hits. Of the eight SAC employees charged with insider trading-related offenses, six agreed to cooperate with the government; the remaining two, Mathew Martoma and Michael Steinberg, were convicted in recent trials, the Times reports. SAC has been a central focus of a years-long investigation by federal prosecutors into insider trading on Wall Street. Spearheaded by Manhattan U.S. Attorney Preet Bharara, the push has secured some 80 insider trading convictions since 2009. Cohen himself was never charged, although his firm was described as a "veritable magnet of market cheaters" by Bharara. "They pushed him out of the hedge fund business, even if not out of his mansion," Erik M. Gordon, a University of Michigan business school professor told the Times. Prosecutors are not barred under terms of Thursday's settlement from indicting Cohen or other SAC traders, but no new charges are imminent, a person familiar with the matter told the Journal. New York Times, Wall Street Journal, Reuters

Bonds Under Scrutiny: Wall Street firms are under scrutiny by regulators interested in the ways they derive profits from the booming bond markets and dole out new offerings to investors, according to the Journal. The Financial Industry Regulatory Authority, a Wall Street self-regulator, is looking through reams of trading data for instances in which banks have earned unusually large profits on bond deals, it reports. The inquiry could lead to a regulatory instruction to the banks to reduce bid-ask spreads or worse. "There might be enforcement action with respect to the outliers," Richard Ketchum, Finra's chairman and chief executive, told the Journal. "We're certainly looking." The regulator is zooming in on what Ketchum called "matched trades," where dealers pair sellers with buyers, often very quickly. For such trades, where the risk is "relatively limited," markups of more than 1.5% to 2% would be "questionable," Ketchem told the newspaper. The Securities and Exchange Commission and Finra are also reportedly cooperating in a look at whether banks hurt small investors by giving the biggest money managers unfair influence over the pricing of new corporate bonds. The SEC has sought information on new bond sales from a number of big banks, including Citigroup (NYSE:C), Goldman Sachs (GS), Deutsche Bank and Morgan Stanley (MS). The SEC is also looking at the practice of dealers showing clients different prices for the same securities on electronic bond-trading platforms, a person with direct knowledge of the inquiry told Bloomberg last month. Regulators are examining whether being able to turn quotes on and off results in market manipulation, and whether smaller buyers are given worse prices, the person said. Wall Street Journal, Bloomberg

Wall Street Journal

Citigroup appears to have a drug problem. The Justice Department is investigating whether a California unit of the banking company failed to alert the feds to suspicious banking transactions along the U.S.-Mexico border that in some cases involved suspected drug-cartel members, people familiar with the probe said. U.S. prosecutors reportedly want to know why Citigroup didn't submit so-called suspicious-activity reports flagging the questionable transactions. The probe highlights the breadth of problems Citi faces following the Federal Reserve's recent rejection of its capital plan and revelations of potential fraud in a separate Mexican unit called Grupo Financiero Banamex, the Journalsays.

A harsh wind is blowing as first quarter earnings season gets underway, according to Heard on the Street's John Carney (and confirmed by JPMorgan Chase's Friday morning miss). "Thanks to enfeebled bond trading, low loan growth, and an uncooperative interest-rate environment, first-quarter bank results aren't likely to impress," he writes. Among his bearish evidence: Weakness in the bond and currency markets and Fed data showing a mere 2.6% gain in loans in the first quarter versus a year earlier, despite a healthy return of business lending. If that weren't bad enough, last year's rise in interest rates has killed off the mortgage-refinancing wave.

Bloomberg View's Matt Levine waxes poetic about the letter chief executive Jamie Dimon released earlier this week to JPMorgan Chase (JPM) shareholders. Specifically Levine takes pleasure in Dimon's eclectic choice of management metrics: "Hours! One million hours on resolution planning! Four hundred people for liquidity planning! Also, workstreams, there are some workstreams," Levine writes. He continues: "Dimon's letter is a fascinating document. Since it's a Jamie Dimon production, there are some amusingly tone-deaf moments, but overall it's really good. Among other things, it's his most sustained and quantified complaint about financial regulation yet. The gist is that everything has trade-offs: Every action that regulators have taken to make banks safer has also imposed some cost on the banks."