June 21, 2021

DealBook: JPMorgan in Talks to Settle Energy Manipulation Case for $500 Million

It is unclear whether FERC will pursue a separate action against Blythe Masters, a senior JPMorgan executive.Manuel Balce Ceneta/Associated PressIt is unclear whether FERC will pursue a separate action against Blythe Masters, a senior JPMorgan executive.

JPMorgan Chase is aiming to settle accusations it devised “manipulative schemes” that transformed “money-losing power plants into powerful profit centers,” a deal that is expected to cost the bank, the nation’s largest, about $500 million.

JPMorgan and the regulator of the nation’s energy markets are still negotiating a potential fine, according to people briefed on the matter, and the talks are not yet final. The $500 million figure could shift as the two sides inch closer to a settlement, a potential record for the Federal Energy Regulatory Commission, or FERC.

The accusations against JPMorgan surfaced in a confidential government document, reviewed by The New York Times, that outlined a pattern of illegal trading in California and Michigan electric markets. The document also claimed one of JPMorgan’s most senior executives gave “false and misleading statements” under oath.

Investigators for FERC sent the document to the bank in March, a preliminary warning that they intended to recommend that the agency pursue an action against JPMorgan and the executive, Blythe Masters. The bank replied to the accusations in mid-May, the people briefed on the matter said, ultimately leading to settlement talks in recent weeks.

It is unclear whether the energy regulator will pursue a separate action against Ms. Masters, known for developing complex financial instruments like derivatives that played a role in the financial crisis. A majority of the five-member energy commission must approve any action — settlement or otherwise — that the FERC investigators recommend.

JPMorgan’s Trading Loss

A settlement would be welcome news for the bank as it faces a swirl of regulatory investigations. After suffering a $6 billion trading loss last year, the bank came under investigation by the Securities and Exchange Commission and the F.B.I. Banking regulators are also weighing new enforcement actions against the bank for the way it collected credit card debt.

A spokeswoman for the bank declined to comment. FERC also declined to comment.

For the energy regulator, it would be the latest in a string of actions against big banks. On Tuesday, FERC ordered Barclays to pay a $470 million penalty for suspected manipulation of energy markets in California and other Western states by some of its traders. The bank is fighting the charges.

JPMorgan faces similar allegations stemming from its rights to sell electricity from power plants in California and Michigan. In the aftermath of the 2008 financial crisis, it became a losing business that relied on “inefficient” and outdated technology, or as JPMorgan called it, “an unprofitable asset.”

Under “pressure to generate large profits,” FERC’s investigators said in the March document, traders in Houston devised a workaround. Adopting eight different “schemes” between September 2010 and June 2011, the traders offered the energy at prices “calculated to falsely appear attractive” to state energy authorities. The effort prompted authorities in California and Michigan to dole out about $83 million in “excessive” payments to JPMorgan, the investigators said.

“Any such improper payments to generators are ultimately borne by the households, businesses and government entities that are the end consumers of electricity,” FERC said.

The prospect of a deal with JPMorgan Chase was reported earlier by The Wall Street Journal.

A branch of JPMorgan Chase in New York.Leslye Davis/The New York TimesA branch of JPMorgan Chase in New York.

Article source: http://dealbook.nytimes.com/2013/07/17/jpmorgan-in-talks-to-settle-energy-manipulation-case-for-500-million/?partner=rss&emc=rss

DealBook: JPMorgan Board Feels Heat From Upset Shareholders

Jamie Dimon, chairman and chief executive of JPMorgan Chase.Keith Bedford/ReutersJamie Dimon, chairman and chief executive of JPMorgan Chase.

As JPMorgan Chase’s annual meeting nears, much of the tension surrounds a critical vote to split the chairman and chief executive roles — a decision that could strip Jamie Dimon, the bank’s influential leader, of the dual titles he has held since 2006. Behind the scenes, though, another battle is brewing.

Some JPMorgan shareholders are taking public aim at individual directors who hold crucial positions on the bank’s audit and risk committees as the bank grapples with an onslaught of regulatory challenges.

On Friday, the CtW Investment Group, which represents union pension funds and owns six million shares in JPMorgan, said it planned to vote against the three directors on the risk policy committee and the head of the audit committee. While it is not known how other shareholders are voting on directors, big stakeholders like BlackRock, T. Rowe Price and TIAA-CREF have increasingly taken aim at boards, voting against directors they think are performing poorly.

JPMorgan, once the darling of Washington after emerging from the financial crisis in far better shape than its rivals, suffered a multibillion-dollar trading loss last year. Since then it has increasingly found itself under regulatory scrutiny for potential risk and compliance lapses.

The Office of the Comptroller of the Currency, one of the bank’s chief regulators, is deciding whether to bring new enforcement actions, according to people who spoke on the condition of anonymity. One action the agency is considering, these people said, focuses on whether JPMorgan used faulty documents in lawsuits to collect overdue credit card debt.

In one of the latest regulatory crackdowns, investigators from the Federal Energy Regulatory Commission sent a scathing message to the bank in March that warned of a potential action over accusations of manipulation in the energy markets. The confidential government document, reviewed by The New York Times, also took aim at a top executive, Blythe Masters, contending she gave “false and misleading statements” under oath.

“We intend to vigorously defend the firm and the employees in this matter,” said Kristin Lemkau, a spokeswoman for the bank, which is the nation’s largest. “We strongly dispute that Blythe Masters or any employee lied or acted inappropriately in this matter.”

While Mr. Dimon apologized in a recent letter to shareholders for disappointing “our regulators,” vowing to bolster controls and “do all the work necessary to complete needed improvements,” some shareholders are not satisfied and are now considering how to cast their votes. Some shareholders are reluctant to vote to split the role of chairman and chief executive, saying the right way to send a message is to vote against certain directors, a move they think will result in positive change at the board level.

JPMorgan’s annual meeting is on May 21 in Tampa, Fla., and the results of shareholders’ votes on all the proposals will be announced then. Directors and senior executives at the firm have been contacting major shareholders in recent weeks, hoping to ease any concerns they might have. They hope to persuade investors not only to back the board but also to vote against a proposal calling for the separation of the chairman and chief executive role. Last year, 40 percent of shareholders supported the proposal.

Shareholders like CtW are singling out members of the risk committee because they think the board failed to police the bank in important areas, contributing to the trading loss in 2012.

“What we have learned over the past year is that the performance of the risk committee is even worse than we thought,” said Richard Clayton, CtW’s research director. “Their behavior is a combination of being out at sea and asleep at the wheel. Both are bad and together they are disastrous.”

James S. Crown, who has been a director of JPMorgan or one of its predecessor companies since 1991, is chairman of the risk policy committee. The other members are David M. Cote, the head of Honeywell International; Timothy P. Flynn, a former KPMG executive; and Ellen V. Futter, president of the American Museum of Natural History. Mr. Flynn was appointed to the risk policy committee in August 2012.

CtW also plans to vote against Laban P. Jackson, chairman of the audit committee, which shares responsibility for oversight.

CtW voted against all four directors last year but went public only about its displeasure with Ms. Futter, contending she lacked banking experience. Last year, 86 percent of shareholders voted for Ms. Futter, the lowest amount of support for any director. A person close to JPMorgan who spoke on the condition of anonymity because he was not authorized to discuss board matters publicly, said that while Ms. Futter was not a career banker, she was well steeped in issues like reputational risk, bringing value to the committee.

Failing to receive a majority of shareholder votes does not necessitate a resignation, but such a vote might prompt a director to leave.

In 2011, before the big trading loss, CtW met with senior bank executives, warning that risk controls needed to be improved. It felt its concerns fell on deaf ears.

At a recent meeting with bank management, including the chief financial officer, Marianne Lake, and the general counsel, Stephen M. Cutler, the company owned up to its recent risk lapses, CtW said, but it has failed to devise any significant changes to improve the risk committee’s operations.

“We realize there was a management failure,” said Dieter Waizenegger, CtW’s executive director. “But it is as if the board didn’t do anything wrong and that is puzzling.”

Ms. Lemkau, the bank spokeswoman, said, “We disagree with CtW on the points they have raised but continue to engage with them.”

CtW’s six million shares are worth about $285 million. In contrast, the company’s biggest shareholders own more than 100 million JPMorgan shares each.

Since the trading loss last year, JPMorgan and its board have worked to fortify controls. JPMorgan’s board reduced Mr. Dimon’s pay this year by more than 50 percent, to $11.5 million, and issued a public report on the trading misstep. With the approval of the board, JPMorgan also clawed back more than $100 million in pay from the employees at the center of the soured wagers.

Last year, the board met 15 times, according to documents filed with the Securities and Exchange Commission. In the bank’s proxy filing, the 11-member board said that Mr. Dimon should continue to hold the duel top posts.

“The board has determined that the most effective leadership model for the firm currently is that Mr. Dimon serves as both,” the filing said.

Article source: http://dealbook.nytimes.com/2013/05/03/jpmorgan-board-feels-heat-from-upset-shareholders/?partner=rss&emc=rss

DealBook: Exelon to Buy Constellation Energy for $7.9 Billion

Exelon announced on Thursday that it would buy Constellation Energy in a $7.9 billion deal, the latest in a wave of consolidation among energy companies, particularly utilities.

Under the terms of the stock-for-stock transaction, Constellation investors would receive the equivalent of $38.59 a share, about 18 percent more than the 30-day average closing price of the stock. The combined entity would have a market value of roughly $34 billion.

“The combination of these two companies will drive innovation and value for customers by combining Exelon’s abundant clean energy supply and Constellation’s leading customer-facing sales and marketing platform,” Constellation’s chief executive, Mayo A. Shattuck III, said, in a statement. “This enterprise will have the scale and financial strength to drive expansion in competitive energy markets as well as new investment in the next wave of clean generation and sustainable products and services.”

The utility space has been an active one for mergers and acquisitions, as companies have sought to cut costs and increase scale. On April 20, the energy producer AES said it would buy DPL, the parent company of Dayton Power Light, for $3.5 billion in cash. In January, Duke Energy announced it would acquire Progress Energy for $13.7 billion in stock.

Exelon and Constellation have mixed histories as deal-makers.

In 2009, Constellation, based in Baltimore, agreed to be sold to Berkshire Hathaway’s MidAmerican Energy Holdings for $4.7 billion. It eventually canceled the deal and instead sold some nuclear assets to Électricité de France for $4.5 billion.

In 2008, Exelon pursued a $7.5 billion hostile bid for NRG Energy. When it could not win over NRG’s shareholders, Excelon dropped the deal. DealBook earlier reported a potential deal between Exelon and Constellation.

Exelon anticipates the acquisition of Constellation will break even in 2012 and be accretive to earnings by 2013. After the deal closes, the combined entity, to be called Exelon, will be the No. 2 residential electricity and natural gas distribution company, covering 6.6 million customers in Maryland, Illinois and Pennsylvania. It will also be the largest competitive power generator, with more than 34 gigawatts of power generation and 226 terawatt-hours of expected output.

“This merger creates the number one competitive energy provider with one of the industry’s cleanest and lowest-cost power generation fleets and one of the largest commercial, industrial and residential customer bases in the United States,” Exelon’s chief executive, John W. Rowe, said in a statement.

The deal, pending regulatory and shareholder approval, is expected to close by early 2012.

For Exelon, Barclays Capital, J.P. Morgan Securities, Evercore Partners and Loop Capital Markets served as financial advisers and Skadden, Arps, Slate, Meagher Flom as legal counsel. Morgan Stanley, Goldman Sachs and Credit Suisse Securities were Constellation’s financial advisers, and Kirkland Ellis acted as legal counsel.

Article source: http://feeds.nytimes.com/click.phdo?i=4ad647eb0674b65e1326125953be63d8