Just 20 minutes ago, JPMorganChase dotted the i's and crossed the t's on one of the largest fines ever paid by a financial institution. It has agreed to pay over $920 million in fines to various American and UK regulators for its role in a host of trading snafus, including the "London Whale" affair. The biggest part of this story--as part of its SEC agreement, Chase has admitted wrongdoing.
The settlement resolves claims by the U.S. Securities and Exchange Commission, Office of the Comptroller of the Currency, Federal Reserve and the U.K. Financial Conduct Authority, the Fed said today in a consent order against the bank. The Justice Department and Commodity Futures Trading Commission are among agencies still investigating the trading loss in London at the chief investment office, a unit of the New York-based bank that was supposed to help reduce risk and manage excess deposits.On the American side, Chase will pay $300 million to the OCC and $200 million each to the Fed and SEC. On the UK side, it will pay $221 million to the FCA, which is the UK's equivalent of the SEC.
The more than $6.2 billion in losses led to the indictment of two former traders this week, the departure of at least four senior managers and a blow to the reputation of Chief Executive Officer Jamie Dimon, 57, whose pay was cut in half. JPMorgan restated results and its market value fell by almost $51 billion after disclosing errant bets made by Bruno Iksil, a trader who became known as the London Whale because his positions were so large.
JPMorgan “exercised inadequate oversight over the CIO and failed to implement adequate controls to ensure the full and adequate disclosure of relevant information to senior management” and the board, the Fed said in the consent order.
JPMorgan acknowledged it violated federal securities laws, according to an SEC statement.
The SEC agreement is probably the most telling part of this settlement. Chase not only admitted that it failed to supervise its traders while they hid their losses, but that its senior management failed to disclose concerns about the losses to their own board. As SEC enforcement chief George Canellos put it, in doing so Chase "broke a cardinal rule of corporate governance."
The admission of wrongdoing could potentially spell trouble for Chase in the immediate future. Criminal investigations by the U.S. Attorney in Manhattan and several state attorneys general, as well as a probe into improper commodities trading by the Commodity Futures Trading Commission, are both well underway and are not covered by this settlement.
For those wondering if anything has changed about how regulators deal with Wall Street, this news can only be a good sign. After all, you have one of the largest financial institutions in the world being forced to admit that it broke the law.
6:54 AM PT: The formal announcements just hit the press within the last 10 minutes. Read the SEC press release regarding the agreement here and the the full SEC agreement here. Also check out Canellos' full statement on the Chase affair here.
7:12 AM PT: Read the FCA's announcement here. The way I'm reading it, it's at least as scathing as the SEC statement. In the FCA's view, Chase has serious deficiencies "from portfolio level right up to senior management." It found Chase guilty of breaching five of its 11 principles for financial institutions--due skill and diligence, inadequate management of its affairs, failure to observe accepted standards of trading conduct and not cooperating with regulators. It also revealed that Chase settled fairly early in the investigation--had it not done so, it would have had to pay the equivalent of $315 million in UK fines.