Holy smokes! JPMorgan Chase just reported that it’s set aside $23 billion to cover future fines and legal bills.
That’s more than the $21.2 billion that the uber-profitable bank earned all of last year.
But no wonder it’s worried.
Chase has paid $3.68 billion so far this year to settle four government investigations that alleged all sorts of wrongdoing.
And the year isn’t over.
Chase Chairman and CEO Jamie Dimon was in Washington last month to negotiate with Justice Department officials investigating how the bank deliberately misled investors about the risk involved in the mortgage-backed securities it sold them.
Industry experts figure Dimon would like to resolve those allegations for something like $4 billion, while the government is thinking more along the lines of $11 billion — which would make it the biggest settlement in the history of American banking.
According to JP Morgan Chase’s annual report, it spent $7.4 billion, $4.9 billion and $5 billion, respectively, on litigation expenses in 2010, 2011 and 2012.
Could 2013 be even more costly?
We scoured the Web to come up with a list of all the allegations the bank has settled this year and all of the ongoing lawsuits and investigations that could lead to settlements down the road.
The breadth of alleged wrongdoing on the part of Chase is truly breathtaking. Lying to shareholders. Abusing borrowers. Manipulating electricity prices. Yeah, electricity prices.
Let’s start with what the bank has agreed to pay so far in 2013:
National mortgage settlement: Chase was one of 10 banks accused of foreclosing on borrowers with illegal paperwork — the so-called “robo-signing” scandal. Settlement with 49 state AGs: $1.96 billion just for Chase.
The London Whale scandal: The bank suffered a $6.2 billion loss at the company’s London Branch due to risky derivatives trading. Losing money isn’t illegal. But Chase executives knew that those losses weren’t being fully reported to shareholders. Settlement with the Securities and Exchange Commission: $920 million.
Unfair credit card billing: JPMorgan was accused of unfairly billing and charging customers for credit monitoring services that they never received. Settlement with the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau: $80 million in penalties and $309 million in refunds.
Power market manipulation: The bank was accused of manipulating the electricity market in California and the Midwest from September 2010 through November 2012. Settlement with the Federal Energy Regulatory Commission: $410 million — a $285 million fine and $125 million in refunds to electric customers.
Everyone seems to think that mortgage-backed securities fraud will be next.
JPMorgan Chase is accused of lending money to marginally or totally unqualified home buyers and then bundling and selling those mortgages to investors by misleading them on the quality and riskiness of those loans.
USAToday says regulators want $7 billion in fines and another $4 billion in relief to borrowers who lost their homes during the financial crisis or remain underwater on their loans.
It will be a giant victory if Dimon can settle for $4 billion, but a $6 billion or $7 billion hit seems more likely, and it’s certainly possible the government won’t budge from $11 billion.
Then there are all of the other active investigations into other potential wrongdoing, including:
Libor manipulation: The National Credit Union Administration has sued JPMorgan and 12 other international banks, alleging that they falsified information used to calculate the London Interbank Offered Rate — a crucial benchmark used to set interest rates worldwide.
Obstruction of justice: The FBI has launched a criminal investigation into whether Chase employees tried to impede the Federal Energy Regulatory Commission’s price-fixing investigation. (See “Power market manipulation” above.)
Ignoring Bernie Madoff: The trustee representing Madoff’s victims has sued Chase, charging that executives suspected he was running a Ponzi scheme years before its collapse but failed to notify authorities.
Credit market manipulation: The Commodity Futures Trading Commission is looking into whether Chase traders involved in the London Whale scandal artificially inflated derivative prices.
International bribery: The Justice Department and SEC are investigating whether Chase hired the children of influential Chinese families so that their parents would steer business to the bank.
We can only hope that Chase doesn’t pursue the time-honored industry solution to such expenses — raising fees on its checking account and credit card customers.