March 25, 2023

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:

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:

DealBook: Hurt by $1.6 Billion Charge, Lloyds Bank Posts a Loss

António Horta-Osório, chief of Lloyds Banking Group.Carl Court/Agence France-Presse — Getty ImagesAntónio Horta-Osório, chief of Lloyds Banking Group.

LONDON – The Lloyds Banking Group said on Thursday that it had set aside an additional £1 billion ($1.6 billion) to compensate clients who were sold insurance inappropriately.

The announcement brings the bank’s total compensation provisions to more than £5 billion, and pushed Lloyds into a net loss for the third quarter. The bank is partly owned by the British government after receiving a multibillion-pound bailout during the financial crisis.

The majority of Britain’s largest banks, including HSBC, Barclays and Royal Bank of Scotland, have been required to set aside more than a combined £10 billion to compensate clients who were inappropriately sold payment protection insurance, which covered customers if they were laid off or became ill. Many customers did not know they had been sold the insurance when they took out loans or mortgages. Others have found it difficult to make claims on the policies, which often paid out only small amounts.

On Wednesday, Barclays announced it had added £700 million to its previously announced £1.3 billion combined figure to reimburse affected clients.

Barclays, which agreed to a $450 million settlement with British and American authorities in July connected to a rate-rigging scandal, is also facing additional legal scrutiny. On Wednesday, the United States Federal Energy Regulatory Commission recommended a $470 million fine related to past energy trading activities in the bank’s American operations. Barclays, which has 30 days to respond to the commission, said it would defend itself against the inquiry.

Lloyds said on Thursday that had a net loss of £361 million in the three months ended Sept. 30, a slight improvement from the £501 million loss in the period a year earlier. Excluding adjustments, Lloyds said its third-quarter pretax profit doubled, to £840 million.

The bank’s core Tier 1 ratio, a measure of its ability to weather financial shocks, also rose slightly, to 11.5 percent.

Shares in the Lloyds Banking Group increased 3.5 percent in morning trading in London on Thursday.

Article source:

DealBook: Facing Fresh Legal Woes, Barclays Swings to a Loss

A branch of Barclays in London. On Wednesday, the British bank posted a net loss of £106 million ($170 million) in its latest earnings report.Facundo Arrizabalaga/European Pressphoto AgencyA branch of Barclays in London. On Wednesday, the British bank posted a net loss of £106 million ($170 million) in its latest earnings report.

LONDON – The British bank Barclays faces more legal trouble, disclosing on Wednesday two new investigations by American authorities that clouded already weak third-quarter results.

The bank said the Justice Department and the Securities and Exchange Commission were investigating whether Barclays broke anticorruption laws in its capital-raising efforts during the financial crisis. The inquiries follows similar efforts by British regulators.

The United States Federal Energy Regulatory Commission is also investigating the past energy trading activity in the bank’s American operations. American authorities have until Wednesday to charge the bank in the matter. Barclays said it would defend itself against any charges stemming from the inquiry.

Related Links

The fresh legal woes, coming on the heels of a rate-rigging scandal that erupted this summer, complicate a difficult turnaround effort by the bank.

On Wednesday, Barclays posted a net loss of £106 million ($170 million) in the three months ended Sept. 30, a steep drop from a £1.4 billion net profit it reported in the period a year earlier. The results were hurt by a charge on its own debt and provisions connected to the inappropriate sale of insurance to clients.

Libor Explained

Antony Jenkins, chief of Barclays.Justin Thomas/VisualMedia, via Agence France-Presse — Getty ImagesAntony Jenkins, chief of Barclays.

“The last three months have been difficult for Barclays,” Antony P. Jenkins, the bank’s chief executive, said on a conference call with reporters on Wednesday.

Shares in Barclays fell 3.8 percent in morning trading on Wednesday in London.

Mr. Jenkins took over as chief executive from Robert E. Diamond Jr., who resigned in July after Barclays agreed to pay $450 million to settle charges that it attempted to manipulate a key benchmark, the London interbank offered rate, or Libor. In the aftermath, Mr. Jenkins promised to increase the focus on retail banking, shifting away from riskier activity in the firm’s investment banking unit.

The new joint investigation from the Justice Department and S.E.C. relates to the bank’s capital-raising efforts during the recent financial crisis.

Unlike the Royal Bank of Scotland Group and the Lloyds Banking Group, Barclays turned to sovereign wealth funds in Abu Dhabi and Qatar for new capital. Barclays raised a total of $7.1 billion from Qatar in July and October 2008.

The bank disclosed this year that British authorities were investigating the legality of payments to Qatari investors in connection with the bank’s capital-raising. Barclays said on Wednesday that American regulators were also pursuing similar inquiries, adding that the bank was cooperating.

Despite its net loss, Barclays is making progress as its underlying businesses show signs of improvement. Excluding the adjustments, Barclays said pretax profit rose 29 percent, to £1.7 billion, in the third quarter.

In the face of continued market volatility, Barclays said pretax profit in its investment and corporate banking division more than doubled in the quarter, to just over £1 billion, on a strong performance in fixed income and equities. The European debt crisis, however, weighed on the bank’s retail and business banking franchise, where pretax profit fell 31 percent, to £794 million.

Ian Gordon, a banking analyst at Investec Securities in London, said the decline in revenue in the investment banking division raised some questions about the unit’s performance. He added, however, that Barclays was in a position to win market share, as competitors like UBS, which announced plans on Tuesday to eliminate 10,000 jobs, moved to reduce trading activity.

“As others pull back,” Mr. Gordon said, “there’s a potential to win a greater share of the piece.”

Barclays warned, however, that continued difficulties in Europe and uncertainty in global markets could weigh on future profitability. “We continue to be cautious about the environment in which we operate,” the bank said in a statement.

Given the challenging environment, Barclays is moving to insulate its businesses. The bank, which operates throughout the European Union, said it had reduce its presence in heavily indebted countries like Spain and Greece. The bank said it had cut its exposure to the sovereign debt of Spain, Italy, Portugal, Greece and Cyprus by 15 percent, to £4.8 billion.

It is also bolstering its capital to protect against potential losses. The bank’s core Tier 1 ratio, a measure of its ability to weather financial shocks, rose to 11.2 percent at the end of September from 10.9 percent at the end of the second quarter.

This post has been revised to reflect the following correction:

Correction: October 31, 2012

An earlier version of this article misstated the pretax profit Barclays attributed to its retail and business banking franchise. It was £794 million, not £794.

Article source: