May 19, 2024

Common Sense: When Trying to Follow Rules Isn’t Enough

In a speech in 2004 to the General Counsel Roundtable, he said: “You’ve got to talk the talk; and you’ve got to walk the walk. Both are critical to maintaining a good tone at the top.” And he called for more accountability: “Hold all of your managers accountable for setting the right tone. That means disciplining or even firing them when they have failed to create a culture of compliance. Human nature being what it is, there will be those who break the rules. But if managers don’t do enough to prevent those violations, or let them go unaddressed for too long, then they should be held responsible — even in the absence of direct involvement in those violations.”

How times have changed.

As general counsel of JPMorgan Chase Company, Mr. Cutler is now on the receiving end of the lectures, which this week came from George S. Canellos, a successor to Mr. Cutler and currently the co-chief of enforcement at the S.E.C. On Thursday, the S.E.C. and other regulators announced that JPMorgan had agreed to admit wrongdoing and pay nearly $1 billion in fines for its conduct in the “London Whale” matter, in which the bank’s chief investment office lost more than $6 billion and bank officials misled regulators about the losses. The S.E.C. faulted JPMorgan’s “egregious breakdowns in controls” and said that “senior management broke a cardinal rule of corporate management” by failing to alert the board to the full extent of the problem.

The S.E.C. didn’t name any of those senior managers, but made reference to the “chief executive,” who is Jamie Dimon. Mr. Cutler oversaw both the legal and compliance departments during those events. (Mr. Cutler no longer oversees compliance.)

And the London Whale affair isn’t JPMorgan’s only regulatory problem. The bank faces multiple other regulatory actions and investigations, ranging from manipulating energy markets, to mortgage-backed securities fraud, to failing to disclose suspicions about the Ponzi scheme operator Bernard Madoff, to conspiring to fix rates in the setting of the global benchmark interest rate informally known as Libor. As the allegations have mushroomed, JPMorgan has gone with almost dizzying speed from one of the world’s most admired banks to one tainted by scandal.

And all of this happened on Mr. Cutler’s watch. “You have to say, he didn’t run a tight enough ship,” said John C. Coffee Jr., a professor of law and expert in corporate governance at Columbia University. “It’s not just the London Whale episode. I wouldn’t call that the crime of the century. But taken with everything else, the energy manipulation, the mortgage fraud cases, the Libor rigging, it suggests that there was not enough investment in compliance and the general counsel was not proactive enough. He’s done a very good job at defending the firm but not enough at preventing it in the first place.”

A lawyer whose company was an S.E.C. target during Mr. Cutler’s tenure said this week, “I have to admit to a certain amount of schadenfreude,” adding: “At the time, he did a lot of grandstanding about lawyers being gatekeepers and the moral compass for the organization and how we should have prevented all this. He sounded great on the soapbox. Now I’ve been following JPMorgan and it’s pretty ironic.”

This lawyer was among the many I contacted who didn’t want to be named. I quickly realized that I was wasting my time trying to get people to offer unconflicted comments about Mr. Cutler or anyone else at the bank, since a) their firm represents JPMorgan; b) they represent someone for whom JPMorgan is paying the legal bills; or c) they’re trying to get into category a or b. James Cramer joked on CNBC’s “Mad Money” this week that JPMorgan should just buy the Manhattan law firm Paul, Weiss, Rifkind, Wharton Garrison, famed for its high-stakes litigation practice.

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DealBook: After a Vote, Dimon Moves to Mend Bank’s Fences

Jamie Dimon shored up his influence at JPMorgan.J. Scott Applewhite/Associated PressJamie Dimon shored up his influence at JPMorgan.

A resounding shareholder endorsement of Jamie Dimon has done what JPMorgan Chase’s robust profits and soaring stock price could not: it helps the nation’s largest bank and its chief executive move beyond a multibillion-dollar trading loss that has dogged the bank for more than a year.

At JPMorgan’s annual meeting in Florida on Tuesday, some 70 percent of the shares voted to keep Mr. Dimon as both chairman and chief executive. It was the culmination of one of the most closely watched corporate contests in recent memory — one that pitted a small but vocal group of shareholders against the most powerful banker in America.

His victory secure, Mr. Dimon is now redoubling his efforts toward repairing JPMorgan’s frayed relationships with regulators, fortifying risk controls and bolstering the bank’s businesses, people briefed on the matter say.

While the shareholder resolution to split the jobs of chief executive and chairman was pitched as improving corporate governance, it soon became tangled up in how Mr. Dimon handled last year’s trading blowup. The surprising loss at the chief investment office unit in London felled some of Mr. Dimon’s top lieutenants and helped lay bare broad risk and control weaknesses throughout the vast bank.

Before the vote, Mr. Dimon complained to executives within the bank that the seemingly unrelenting fascination with the shareholder proposal was an unfortunate distraction that siphoned energy and resources, according to several people close to the bank.

Hastily leaving the annual meeting in Tampa, Mr. Dimon expressed that exasperation to reporters, saying, “We really don’t want any more press.”

Afterward on Tuesday, in an e-mail to employees, the chief executive wrote: “There has been a lot of talk around this topic over the past few weeks, and in some cases, it was distracting. In spite of that, you stood tall and maintained your focus on the business and did the job we are all here to do.”

JPMorgan’s Trading Loss

With the decisive shareholder endorsement, Mr. Dimon has bolstered his influence at the helm of JPMorgan, while the proxy advisory firms that advise investors on corporate governance issues saw their influence wilt. The tally demonstrated that more investors, especially mutual funds, are doing their own work on proxy questions instead of simply relying on the recommendations of firms like Institutional Shareholder Services or I.S.S.

“Mutual funds are paying close attention to these contested elections, especially because there are fewer publicly traded companies now that make up a greater share of the funds’ portfolios,” said Gerald Davis, a professor of management and organizations at the University of Michigan. “It pays to really pay attention.”

Matrix Asset Advisors Inc, which holds roughly 619,000 JPMorgan shares, was one such institutional investor that broke ranks with I.S.S. In principle, Matrix supports a separate chairman and chief executive, said Jordan Posner, its managing director, but in the case of JPMorgan, those rules shifted and it voted against the shareholder proposal.

“We think that pragmatically, it made more sense for Jamie Dimon to continue in both roles,” Mr. Posner said. “He has done an outstanding job.”

The outcome of the vote, coming on the heels of aggressive lobbying by JPMorgan to secure a victory, also pointed, some observers say, to how Wall Street tackles shareholder discontent as if it were a political campaign.

Through meetings and calls to investors, JPMorgan successfully won the support of a handful of investors who backed Mr. Dimon in this year’s closely watched contest, but voted to divide the roles last year, according to two people with knowledge of the matter.

Now Mr. Dimon plans to marshal the momentum from the shareholder victory to try to strengthen the bank’s compliance and audit controls, according to several people with knowledge of the matter. That cleanup work was already under way, but the victory gives him more of a mandate to tackle it head on, these people say.

As part of that push, JPMorgan is beefing up the staff under Matt Zames, JPMorgan’s chief operating officer, according to several people close to the bank. Mr. Zames was initially chosen by Mr. Dimon to take over the chief investment office in the aftermath of the troubled bets. By the end of the year, JPMorgan is on track to hire as many as 1,000 employees charged with compliance and controls.

Top bank executives are increasing the frequency of their trips to meet with regulators in Washington, the people close to the bank said. Gordon A. Smith, who is chief executive of JPMorgan’s community and consumer banking, has taken about one trip to Washington each month.

Mending the frayed relationships with Washington will be difficult, however, as the bank continues to contend with a series of regulatory missteps.

In January, the Office of the Comptroller of the Currency took an enforcement action against JPMorgan, faulting it for lapses in how the bank controls against the flow of tainted money. The Comptroller is also investigating whether JPMorgan failed to tell federal authorities of its suspicions about Bernard L. Madoff, subsequently convicted in the largest Ponzi scheme in history. The agency is now weighing a move against JPMorgan for using questionable documents to collect overdue credit card bills, according to officials with knowledge of the investigations.

“The regulators are not going away and JPMorgan still has a target on its back,” said Michael Mayo, a banking analyst for CLSA.

And despite the blessing of the bank’s shareholders, some regulators remain skeptical that Mr. Dimon and JPMorgan can truly overhaul a bank and a culture where requests from regulators were sometimes met with outright resistance.

Still, the people close to the bank say that Mr. Dimon is working to improve the bank’s culture, encouraging executives to provide regulators with a wide window of information that anticipates their questions.

A version of this article appeared in print on 05/23/2013, on page B1 of the NewYork edition with the headline: After a Vote, Dimon Moves To Mend Bank’s Fences.

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DealBook: Familiar With Controversy, Blankfein Offers Advice to Dimon

Lloyd C. Blankfein, left, with Jamie Dimon in 2009.Michael Reynolds/European Pressphoto AgencyLloyd C. Blankfein, left, with Jamie Dimon in 2009.

Jamie Dimon has consulted lawyers, public relation experts and bankers as JPMorgan Chase wrestles with the fallout from a multibillion-dollar trading loss. But the bank chief has received advice from an unexpected corner: Lloyd C. Blankfein of rival Goldman Sachs.

The two executives have talked privately a number of times in recent months about the challenges that Mr. Dimon is facing, people with knowledge of the relationship but not authorized to speak on the matter, have said.

JPMorgan is battling a shareholder vote on whether to separate Mr. Dimon’s positions as chief executive and chairman, and is also dealing with a number of regulatory investigations. The vote is coming to a head. Within the last week shareholders have been casting their ballots, but at least a handful of major shareholders have yet to vote, according to others briefed on the matter but not authorized to speak on the record.

The conversations between Wall Street’s two most powerful chieftains represent a reversal of roles. It is now Mr. Dimon who is in a harsh public spotlight, seemingly at odds with regulators. It was not long ago that Mr. Blankfein was being questioned by Congress over accusations that Goldman had misled investors during the financial crisis over the sale of mortgage-backed securities.

Now, with Goldman cleared of crisis-era investigations and its profits rising, Mr. Blankfein is enjoying something of a renaissance as an elder statesman of Wall Street.

“I would call them foul weather friends,” said one person with knowledge of the relationship who was not authorized to speak on the record.

JPMorgan’s Trading Loss

Mr. Dimon, left, who is facing scrutiny, and Mr. Blankfein after a White House meeting on the economy in 2009.Kevin Lamarque/ReutersMr. Dimon, left, who is facing scrutiny, and Mr. Blankfein after a White House meeting on the economy in 2009.

Foxhole buddies might be a better metaphor. Both executives steered their firms through the tumult and panic of the financial crisis.

Yet while the JPMorgan chieftain emerged from the crisis hailed as Washington’s favorite banker, Goldman’s chief was cast by many as a villain.

Having survived that trial by fire, Mr. Blankfein is advising Mr. Dimon that the current storm will eventually pass, just as it appears to have done so for Goldman, the people with knowledge of the relationship said.

Goldman’s experiences does offer lessons. At a recent meeting of top financial services industry executives, Mr. Dimon asked a small group of people, which included a top-ranking Goldman executive but not Mr. Blankfein, how Goldman managed to avoid having to put forward to shareholders a vote on whether to split the job of chairman and chief executive, according to one attendee and others briefed on the conversation.

Goldman, one person explained to Mr. Dimon, worked hard behind the scenes with its shareholders to head off such a vote, persuading them that the firm had a strong, independent lead director on its board.

While the consultations may be recent, the two men — both native New Yorkers — have long had a cordial relationship. Both are members of the Financial Services Roundtable and they have crossed paths at Manhattan fund-raisers, like the annual dinner of the Robin Hood Foundation, which raises money to fight poverty in New York City.

When together, they often try to outwit each other, said one person who has seen the two in action. At a meeting a few years ago, the person recalled, Mr. Dimon responded to a comment by Mr. Blankfein by asking, “Lloyd, are you still trying to do God’s work?” a reference to an oft-quoted remark the Goldman chief executive made to a reporter in 2009.

People close to Mr. Blankfein, who turns 59 in September, and Mr. Dimon, who is 57, emphasize that when the executives talk it is typically on a variety of issues, and it would be unusual for a call to be focused solely on Mr. Dimon’s current situation.

The shareholder vote and questions about Mr. Dimon’s leadership have come about even as the bank has generated a string of record quarterly profits. On Tuesday, a JPMorgan executive told a conference that trading revenue was running 10 to 15 percent higher this quarter, compared with the second quarter a year ago.

Yet the bank continues to be haunted by the trading losses at its chief investment office in London more than a year ago. JPMorgan has moved to put the problem behind it, firing traders at the center of the disastrous bet, seeking to regain millions of dollars in compensation and reshuffling its executive ranks.

But investigations and a Senate report and hearing that accused the bank of misleading investors and regulators have kept the spotlight on the bank. Other investigations have raised questions about the bank’s controls and relations with regulators.

Paul A. Argenti, a professor of corporate communications at Dartmouth’s Tuck School of Business, said that while JPMorgan did an excellent public relations job handling the trading losses, the bank’s public relations strategy is not enough to tackle the broader issues.

“This has ceased to be about the ‘Whale’ and it’s become about whether you can trust this institution and this executive again,” he said. Now, Mr. Dimon is bracing for the outcome of a looming vote that could threaten his position as JPMorgan’s chairman and chief executive, dual roles he has held since 2006. The nonbinding vote, which will be announced on May 21 at JPMorgan’s annual meeting in Tampa, Fla., is expected to be close. In 2012, 40 percent of shareholders voted to split the two roles.

Still, JPMorgan says despite the travails of the last year, surveys show customers are still happy with the bank. JPMorgan ranked No. 4 in the nation for customer service, in J.D. Power’s latest tally, and top among the nation’s largest banks.

And the bank may take comfort in Mr. Blankfein’s counsel that Mr. Dimon will cycle out of the headlines.

Mr. Blankfein has had a public image makeover, thanks in part to initiatives by Goldman. After the financial crisis, Goldman announced new charitable efforts, started an advertising campaign and showed an increased willingness to engage with the media.

Then, earlier in 2012, it hired Richard Siewert Jr., a former White House spokesman and counselor to former Treasury Secretary Timothy Geithner.

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DealBook: JPMorgan Caught in Swirl of Regulatory Woes

Jamie Dimon, chief of JPMorgan Chase, at a Senate panel last year.Karen Bleier/Agence France-Presse — Getty ImagesJamie Dimon, chief of JPMorgan Chase, spoke to a Senate panel last year.

Government investigators have found that JPMorgan Chase devised “manipulative schemes” that transformed “money-losing power plants into powerful profit centers,” and that one of its most senior executives gave “false and misleading statements” under oath.

The findings appear in a confidential government document, reviewed by The New York Times, that was sent to the bank in March, warning of a potential crackdown by the regulator of the nation’s energy markets.

The possible action comes amid showdowns with other agencies. One of the bank’s chief regulators, the Office of the Comptroller of the Currency, is weighing new enforcement actions against JPMorgan over the way the bank collected credit card debt and its possible failure to alert authorities to suspicions about Bernard L. Madoff, according to people who were not authorized to discuss the cases publicly.

In a meeting last month at the bank’s Park Avenue headquarters, the comptroller’s office delivered an unusually stark message to Jamie Dimon, the chief executive and chairman: the nation’s biggest bank was quickly losing credibility in Washington. The bank’s top lawyers, including Stephen M. Cutler, the general counsel, have also cautioned executives about the bank’s regulatory problems, employees say.

Mr. Dimon acknowledged in a recent letter to shareholders that “unfortunately, we expect we will have more” enforcement actions in “the coming months.” He apologized for letting “our regulators down” and vowed to “do all the work necessary to complete the needed improvements.”

Still, the broad regulatory scrutiny — at least eight federal agencies are investigating the bank — presents a threat to JPMorgan at a time when it is raking in record profits.

For executives, the bank’s transition from model citizen to problem child in the eyes of the government has been jarring. It has helped drive top managers out of the bank, and it could make a coming shareholder vote on whether to split the roles of chairman and chief executive an anxious test for Mr. Dimon, long the country’s most influential banker.

Given the bank’s strong earnings, investors are unlikely to pull out. Yet a growing number of shareholders say they are concerned about the regulatory problems.

In the energy market investigation, the enforcement staff of the Federal Energy Regulatory Commission, or FERC, intends to recommend that the agency pursue an action against JPMorgan over its trading in California and Michigan electric markets.

The 70-page document also took aim at a top bank executive, Blythe Masters. A seminal Wall Street figure, Ms. Masters is known for helping expand the boundaries of finance, including the development of credit default swaps, a derivative that played a role in the financial crisis.

The regulatory document cites her supposed “knowledge and approval of schemes” carried out by a group of energy traders in Houston. The agency’s investigators claimed that Ms. Masters had “falsely” denied under oath her awareness of the problems and said that JPMorgan had made “scores of false and misleading statements and material omissions” to authorities, the document shows.

It is unclear whether the agency will file an action against JPMorgan based on the investigators’ findings. A majority of the five-member commission must first endorse the case. If the regulator does proceed, it could fine the bank and Ms. Masters.

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

JPMorgan has until at least mid-May to respond to the accusations in the document.

As the bank fights the energy investigation, it says it is trying to rectify other lingering compliance woes.

Recent departures from the bank, however, could complicate that effort. Frank J. Bisignano, the co-chief operating officer known for cleaning up JPMorgan’s troubled mortgage division after the 2008 financial crisis, announced his departure this week. Barry Koch, a senior lawyer with strong ties to law enforcement, is also expected to soon leave the bank, people close to Mr. Koch say.

Mr. Dimon’s meeting with the comptroller’s office last month further highlighted the bank’s challenges with regulators.

In the credit card investigation, people briefed on the case said the comptroller’s office had discovered that JPMorgan was relying on faulty documents when pursuing lawsuits against delinquent customers. The accusations, which are expected to prompt an enforcement action later this year, echo complaints that JPMorgan and rivals plowed through home foreclosures with little regard for accuracy.

In a separate investigation into JPMorgan’s relationship with Mr. Madoff, the comptroller’s office raised concerns that the company may have violated a federal law that requires banks to report suspicious transactions. Eventually, the people said, the agency could reprimand the bank for the potential oversight failures.

“We believe that the personnel who dealt with the Madoff issue acted in good faith,” Ms. Lemkau, the bank spokeswoman, said.

Some bank analysts also note that JPMorgan’s strong earnings could ameliorate concerns among its investors.

“As long as you’re making money, investors don’t care,” said Paul Miller, a managing director at FBR.

Regulators, however, increasingly do care. When the comptroller’s office sought documents in the Madoff case from JPMorgan, the bank declined, citing attorney-client privilege, according to bank employees. The dispute was then elevated to the Treasury Department’s inspector general, which oversees the comptroller’s office.

“The matter is pending,” said Richard Delmar, a counsel to the inspector general.

The Madoff case, authorities say, exposed a recurring problem at JPMorgan — what they say is its sometimes combative stance with regulators. In a recent report examining a $6 billion trading loss at the bank, Senate investigators faulted JPMorgan for briefly withholding documents from regulators. The trading loss has spawned several law enforcement investigations into the traders who created the faulty wager.

Mr. Dimon, who is not suspected of any wrongdoing, met this week with prosecutors and the F.B.I. to discuss the case, two people briefed on the investigation said.

A day before the Senate subcommittee released its report on the trading loss, JPMorgan received another ominous dispatch from Washington. On March 13, enforcement officials at FERC notified the bank that it planned to recommend an action over the power plant investigation.

JPMorgan is the latest big bank to face scrutiny from the energy regulator, which recently pursued actions against Barclays and Deutsche Bank. The cases reflect how the regulator has kept a more vigilant watch over the energy markets ever since the Enron fraud.

But Wall Street is fighting back against the new approach, casting the agency’s enforcement unit as overzealous and overreaching.

The JPMorgan case arose, according to the document, after the bank’s 2008 takeover of Bear Stearns gave the bank the rights to sell electricity from power plants in California and Michigan. It was a losing business that relied on “inefficient” and outdated technology, or as JPMorgan called it, “an unprofitable asset.”

Yet under “pressure to generate large profits,” the agency’s investigators said, 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. The behavior had “harmful effects” on the markets, according to the document.

JPMorgan disputes the claims, arguing that its trading was legal.

“The staff is challenging a bidding strategy that was transparent and was in full compliance with the applicable rules,” said Ms. Lemkau, the bank’s spokeswoman. “We strongly disagree with the staff’s conclusions.”

For now, according to the document, the enforcement officials plan to recommend that the commission hold the traders and Ms. Masters “individually liable.” While Ms. Masters was “less involved in the day-to-day decisions,” investigators nonetheless noted that she received PowerPoint presentations and e-mails outlining the energy trading strategies.

The bank, investigators said, then “planned and executed a systematic cover-up” of documents that exposed the strategy, including profit and loss statements.

In the March document, the government investigators also complained about what they said was obstruction by Ms. Masters. After the state authorities began to object to the strategy, Ms. Masters “personally participated in JPMorgan’s efforts to block” the state authorities “from understanding the reasons behind JPMorgan’s bidding schemes,” the document said.

The investigators also referenced an April 2011 e-mail in which Ms. Masters ordered a “rewrite” of an internal document that raised questions about whether the bank had run afoul of the law. The new wording stated that “JPMorgan does not believe that it violated FERC’s policies.”

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DealBook: JPMorgan Ignored Warnings in Loss, Inquiry Finds

A Senate panel report says that Jamie Dimon, chief of JPMorgan Chase, withheld details about the bank's daily losses.Jim Lo Scalzo/European Pressphoto AgencyA Senate panel report says that Jamie Dimon, the chief executive of JPMorgan Chase, withheld details about the bank’s daily losses.

JPMorgan Chase, the nation’s biggest bank, ignored internal controls and manipulated documents as it racked up trading losses last year, while its influential chief executive, Jamie Dimon, briefly withheld some information from regulators, a new Senate report says.

The findings by the Congressional investigators shed new light on the multibillion-dollar trading blunder, which has claimed the jobs of several top executives and prompted an inquiry by the Federal Bureau of Investigation. The 300-page report, released a day before a Senate subcommittee plans to question bank executives and regulators at a hearing, will escalate the debate over how to police complex risk-taking on Wall Street. It may also foreshadow a criminal case against employees at the heart of the troubled wager.

A spokeswoman for the bank said on Thursday, “While we have repeatedly acknowledged significant mistakes, our senior management acted in good faith and never had any intent to mislead anyone.”

Mr. Dimon, whose reputation as an astute manager of risk has been undercut by the trading losses, comes under the harshest criticism yet from the Senate investigators. The chief executive signed off on changes to an internal alarm system that underestimated losses, seemingly contradicting his earlier statements to lawmakers, according to the report.

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He is also accused of withholding from regulators details about the investment bank’s daily losses — and then raising “his voice in anger” at a deputy who later turned over the information.

While people close to the matter dispute whether the outburst actually happened, it illustrates a broader problem at JPMorgan: after emerging from the financial crisis in far better shape than rivals, the bank saw itself as being above its regulators. The bank was so filled with hubris, Senate investigators said, that an executive once screamed at examiners and called them “stupid.”

The bipartisan report, citing some of the same private documents that F.B.I. agents are now poring over, also highlighted how JPMorgan managers “pressured” traders to lowball losses by $660 million, a previously undisclosed figure, and then played down the problems to authorities.

The bank’s trader who became known as the London Whale — because of the outsize derivatives trades at the center of the bank’s losses, which now total more than $6 billion — told a colleague last year that the bank’s estimated losses were “getting idiotic,” according to a transcript of their phone conversation cited by the subcommittee. The trader, Bruno Iksil, added that “I can’t keep this going” and that he didn’t know where his boss in London “wants to stop.”

Federal investigators, seeking Mr. Iksil’s side of the story, now plan to interview the trader overseas, according to people briefed on the investigation.

Timeline: JPMorgan Trading Loss

After examining hundreds of e-mails and hours of taped phone calls, the people said, federal investigators also plan to interview top JPMorgan executives in the coming weeks, including Mr. Dimon. While authorities do not suspect the chief executive of wrongdoing, the meetings signal that the case is at an advanced stage.

The breakdowns at both the bank and at its regulators, in particular the Office of the Comptroller of the Currency, could galvanize support for new curbs on Wall Street trading.

Calling the bank’s trading strategy a “runaway train that barreled through every risk warning,” Senator Carl Levin, the Michigan Democrat who runs the Permanent Subcommittee on Investigations, said that the bank “exposed daunting vulnerabilities” in the financial system.

Demands from regulators for more information were met with resistance at JPMorgan, the subcommittee said. The pushback extended to the highest levels of the bank, the report found, and was not limited to requests about the bank’s chief investment office, where the losses took place.

For a brief period in 2012, the subcommittee said, JPMorgan stopped providing profit and loss reports for the investment bank to the comptroller’s office. Mr. Dimon, the subcommittee said, had choked off delivery of the reports because he thought “it was too much information to provide.”

Some people briefed on the matter dispute that characterization, noting that the reports were briefly halted because of security concerns.

Yet at other times, the bank was not fully forthcoming, Senate investigators said. During a meeting in January 2012 with the comptroller’s office, JPMorgan said it intended to reduce the size of the complex trading bet. Instead, the bank increased the positions.

Ina Drew, who headed the chief investment office, balked at the regulator’s demands for more information, resisting them as “unnecessary and intrusive,” the subcommittee said in its report.

Bryan Hubbard, a spokesman for the currency office, said the agency acknowledged there “were shortcomings in the O.C.C. supervision leading up to and responding to the unfolding events” with JPMorgan’s chief investment office.

He added that “as the bank revealed the true nature of the C.I.O. operation and the level of loss exposure, the comptroller escalated the agency’s response and ordered a two-pronged review into the bank’s actions as well as the O.C.C.’s.”

JPMorgan faces the most scrutiny over its lowball estimates of losses, the topic of the F.B.I.’s investigation. While traders have leeway to value their losses, the bank in 2012 moved from marking them in a “middle range” to some of the most generous possible figures.

One junior trader in London, Julien Grout, told Mr. Iksil in a recorded phone conversation: “I am not marking at mids as per a previous conversation.” For five days in March, Mr. Grout also kept a spreadsheet that tracked the difference between his valuations and the midpoint. The documents, according to the subcommittee, showed that his valuations underestimated the losses by $432 million.

The bank’s controller, alerted to potential problems, issued an internal report in May 2012 that essentially cleared the traders of wrongdoing. The marks, according to the report, were “consistent with industry practices.”

But JPMorgan, the subcommittee noted, later had to restate its earnings to reflect the overly rosy estimates.

“The bank said the markings complied with the standards of the industry,” Mr. Levin said. “We don’t think that’s true.”

Mr. Levin called for new rules that would force banks to strengthen their methods for valuing their trades. He also urged regulators to finalize the so-called Volcker Rule, which would prevent banks from making such bets with their own money.

JPMorgan, the subcommittee noted, “mischaracterized high risk trading as hedging,” or mitigating risk, which is allowed under the Volcker Rule. Douglas Braunstein, the bank’s chief financial officer, told analysts in April that the position “is consistent” with a proposed version of the Volcker Rule, a conclusion that the subcommittee dismissed as false.

One regulator wrote in a May 2012 e-mail that the position was a “make believe voodoo magic ‘composite hedge.’ ”

As the traders in London assembled increasingly complex bets, JPMorgan ignored its own risk alarms, according to investigators. In the first four months of 2012 alone, the report found, the chief investment office breached five of its critical risk controls more than 330 times.

Instead of scaling back the risk, though, JPMorgan changed how it measured it, in a metric known as value at risk, or VaR, in January 2012, enabling the traders to continue building the big bets, the subcommittee found.

The report provides further detail about what Mr. Dimon knew about the changed alarm system. Mr. Dimon told the subcommittee that he couldn’t “recall any details in connection with approving the VaR limit increase.”

But Mr. Dimon personally authorized JPMorgan to temporarily increase the measure, writing in a January 2012 e-mail, “I approve.”

A version of this article appeared in print on 03/15/2013, on page A1 of the NewYork edition with the headline: Senate Inquiry Faults JPMorgan on Trading Loss.

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Economix Blog: Simon Johnson: Big Banks Have a Big Problem


Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The largest banks in the United States face a serious political problem. There has been an outbreak of clear thinking among officials and politicians who increasingly agree that too-big-to-fail is not a good arrangement for the financial sector.

Today’s Economist

Perspectives from expert contributors.

Six banks face the prospect of meaningful constraints on their size: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. They are fighting back with lobbying dollars in the usual fashion – but in the last electoral cycle they went heavily for Mitt Romney (not elected) and against Elizabeth Warren and Sherrod Brown for the Senate (both elected), so this element of their strategy is hardly prospering.

What the megabanks really need are some arguments that make sense. There are three positions that attract them: the Old Wall Street View, the New View and the New New View. But none of these holds water; the intellectual case for global megabanks at their current scale is crumbling.

The Old Wall Street view is that there is nothing to see – big banks know what they are doing and pose no threat to the economy. This position was in complete ascendancy before 2007 but is seldom heard today. In part, of course, the financial crisis made this view seem more than a little hard to defend.

And any attempt to resurrect this position was completely sunk by the “London Whale” losses suffered by JPMorgan Chase last year. We’ll learn more in the hearing on Friday called by Senator Carl Levin of Michigan, although the chief executive, Jamie Dimon, was not asked to testify. Senator Levin’s Permanent Subcommittee on Investigations is also expected to issue a report.

All these details about the London Whale will reinforce the view that even one of our supposedly great risk managers, Mr. Dimon, can lose control of what is happening in his business – on a scale that can matter for overall profits and, potentially, for the economy.

The largest banks have become too complex to manage. And when they fail, the consequences are huge for all of us. This point is completely nailed by Anat Admati and Martin Hellwig’s new book, “The Bankers’ New Clothes.”

The New Wall Street view is that there is no too-big-to-fail subsidy. Or perhaps there is a subsidy but no one can measure it. Or perhaps someone can measure it, but not the people who have done so. If the first view ended in tragedy – the crisis and huge job losses of 2008 – this New View is simple comedy.

My colleagues at Bloomberg View have written a series of devastating editorials explaining for a broad audience the nature and likely scale of subsidies that very large banks receive. You should read the series, starting with the latest contribution this week, which includes useful links to previous salvos on both sides.

The reaction of the industry is running roughly parallel to how church officials originally responded to Galileo’s work. No doubt the bankers in question would like to compel Bloomberg View to renounce its opinions.

Fortunately, we have come a long way since 1633.

And the banks’ lobbyists are making an uncharacteristic mistake by digging in with this extreme and indefensible view. Ask people in the credit markets if they think lenders to the biggest banks have some degree of downside protection afforded by the government (including the Federal Reserve). I have never heard any reasonable investor deny this reality in private.

The big banks are well down the road to acknowledging that there may be a subsidy and the question is how to measure it – and how to assess all the available evidence.

All data are complex. The Federal Reserve changes monetary policy on the basis of numbers that are hard to know precisely. What exactly is “core inflation” or the “natural rate of unemployment” at this moment?

And whenever people try to bedazzle you with econometrics, go back to the simple numbers and see a powerful story: megabanks have a funding advantage, if you think about it properly and compare apples to apples. See, for example, this column by David Reilly in The Wall Street Journal this week. (Mr. Reilly endorses a position similar to one I have advanced with Sheila Bair and other colleagues.)

The New New Wall Street view is that too-big-to-fail exists but that Dodd-Frank will bring it under control. This argument remains the best hope for global megabanks, but even this perspective is now under severe pressure.

This position has some powerful adherents, including Ben Bernanke, chairman of the Federal Reserve, and Jerome Powell, a member of its Board of Governors. (I wrote about Mr. Powell’s views in this space last week and about Mr. Bernanke the week before).

The problem is that Mr. Bernanke clearly articulated, during the Dodd-Frank debate, that the big financial companies would be pressed to become smaller of their accord.

Three years later, there is no sign of actually happening.

And now come Richard Fisher and Harvey Rosenblum, knocking hard on the gates of Washington with an op-ed article in The Wall Street Journal on Monday, “How to Shrink the ‘Too-Big-to-Fail’ Banks.”

Mr. Fisher is a successful private-sector investor who now heads the Federal Reserve Bank of Dallas, where Mr. Rosenblum is also a senior official.

From the heart of the Federal Reserve System – and deeply steeped in private-sector experience – comes a clear statement that too-big-to-fail exists and Dodd-Frank did not end it.

Attorney General Eric Holder’s testimony to Congress last week also confirmed the latter point: some banks are so big that the Department of Justice is afraid to bring legal charges against them, for fear of how that would affect the economy. Senator Warren of Massachusetts continues to press this issue relentlessly and very effectively.

You should also listen to this Bloomberg radio interview with Arthur Levitt, who acknowledges “too big to jail” about two-thirds of the way through. Mr. Levitt, a former chairman of the Securities and Exchange Commission, is currently an adviser to Goldman Sachs, so I expect he’ll have to walk this statement back.

Most worrying for the big banks, Mr. Fisher is more broadly on the right of the political spectrum. On Friday, he will address the Conservative Political Action Conference. I’m not sure a senior Fed official has ever done this before.

Mr. Fisher is not only entirely correct. He is also on a completely convergent path with Senator Brown of Ohio. In fascinating new development on Wednesday, Bloomberg News reported more details on the Fisher-Rosenblum push for a hard size cap on big banks, which would force JPMorgan and Bank of America, for example, to become significantly smaller.

The executives who live well on subsidies at big banks should be very afraid.

The Fed cannot long resist the pressure to measure and assess too-big-to-fail subsidies. The Government Accountability Office is in the process of doing exactly this, at the request of Senators Brown and David Vitter, Republican of Louisiana. As Senator Vitter put it, “Despite the claims made by the paid cheerleaders of the megabanks, Too Big To Fail is alive and well, and the banks receive taxpayer subsidies.”

He went on to say: “Chairman Bernanke knows it, the market knows it, and the taxpayers know it,” adding that he thought the G.A.O. study would “get to the bottom of” the facts.

We’ll get a range of reasonable estimates. And they will all suggest the continuing presence of subsidies for financial companies that are perceived as too big to fail.

And then Mr. Fisher, Senator Brown and other sensible people can help us move toward policies that will impose binding size constraints on our largest financial institutions.

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DealBook: JPMorgan Names New Head of Chief Investment Office

Craig Delany is the new head of JPMorgan Chase's chief investment office.JPMorgan ChaseCraig Delany is the new head of JPMorgan Chase’s chief investment office.

Continuing its management shuffle in the wake of a multibillion-dollar trading loss, JPMorgan Chase announced on Thursday that Craig Delany would take the helm of the chief investment office, the unit at the center of the soured trade.

Mr. Delany, 41, was most recently the chief operating office of JPMorgan’s mortgage banking unit.

The latest management shift follows a broader reorganization of the bank’s upper ranks, which was intended to strengthen JPMorgan’s focus on its clients, especially as profit in other areas is threatened by regulatory changes and the gloom in Europe.

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In July, JPMorgan promoted a number of younger executives, including Matthew E. Zames and Michael J. Cavanagh.

Mr. Delany, who will report to Mr. Zames, whose rise has generated speculation about who may succeed the bank’s chief executive, Jamie Dimon. Still, people close to the bank say that Mr. Dimon, who is 56, does not have plans to hand over the reins for at least five years.

“Craig has been in the center of some of the company’s toughest challenges, including the 2008 financial crisis, the acquisition of Bear Stearns, and helping to lead the turnaround of our Mortgage division following the housing collapse,” JPMorgan said on Thursday in an e-mail announcing the management moves.

JPMorgan has been working to contain the damage from the trading loss — a rare black eye for Mr. Dimon, once considered among the most deft risk managers on Wall Street.

In May, Mr. Zames, 41, took over the bank’s chief investment office, succeeding Ina Drew, who was one of the more notable casualties of the trade, which has grown to $5.8 billion in losses.

Like Mr. Zames, Mr. Delany has gained a reputation as a kind of fix-it man. He was brought in to turn around the bank’s struggling mortgage unit, which has been dogged by complaints of wrongful foreclosures and other processing flaws.

During Mr. Dimon’s nearly six-year reign, JPMorgan has had many management overhauls. In fact, few of the executives who made up Mr. Dimon’s inner circle during the financial crisis – including Bill Winters, Steve Black and Heidi Miller – remain.

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DealBook: Lending Helps JPMorgan, but 4th Quarter Was Soft

“I believe that you are seeing real loan growth,” said Jamie Dimon, chief executive of JPMorgan Chase.Scott Eells/Bloomberg News“I believe that you are seeing real loan growth,” said Jamie Dimon, chief executive of JPMorgan Chase.

Wall Street, more than three years after the financial crisis, has loosened its lending tap. Consumers, however, have yet to reap the benefits.

Results announced on Friday by the nation’s strongest and biggest bank by assets, JPMorgan Chase, point to a divided economy where big businesses are gaining ground while consumers still cannot find their footing.

JPMorgan reported a weak fourth quarter, with earnings down 23 percent compared with the period a year earlier. The bank was hurt by a fourth-quarter slump in investment banking and other Wall Street businesses, which suffered amid the sluggish economic recovery and worries that the European debt crisis will spread.

One significant bright spot was the bank’s growth in corporate loans. The commercial banking unit’s profits rose to $643 million, a 21 percent increase from the previous year, as lending to corporations grew for the sixth consecutive quarter.

The strong results helped JPMorgan turn a $19 billion profit for 2011, up 9 percent from a year earlier.

The bank’s chairman and chief executive, Jamie Dimon, emphasized the uptick in lending. “I believe that you are seeing real loan growth,” Mr. Dimon said on a conference call with journalists. “And I think that will continue.”

The credit surge rippled through corporate America and the nonprofit world, too, as the bank lent to entities as varied as major corporations, hospitals, universities and local governments. Last year, JPMorgan lent $58 million to a cancer research center in Washington State. The bank also lent $17 billion to small businesses in the United States, a 52 percent leap.

“All types of corporations” are taking out loans, Mr. Dimon said, “large, small, medium, all types.”

But the figures highlight the differences between the corporate and consumer economies.

The bank’s student loans dipped more than 7 percent last year. Auto loans dropped nearly 2 percent. JPMorgan’s credit card lending fell 2.5 percent, to $132.2 billion at the end of 2011, though such loans rose 5 percent in the second half of the year.

“The consumer is still deleveraging,” said Jason Goldberg, a senior analyst with Barclays. “It’s not a lack of supply; it’s a lack of demand.”

While consumers are reluctant to take on extra debt when the economic outlook is uncertain, banks like JPMorgan also remain wary of increasing their exposure to individual borrowers, particularly potential homeowners.

JPMorgan made 765,000 mortgages in 2011, but, like other banks, it sells most of them to Fannie Mae and Freddie Mac, the government-controlled housing finance companies. Banks must hold layers of capital against mortgages they keep on their balance sheets, so selling to Fannie and Freddie can be an attractive alternative to holding them.

Nearly 90 percent of all mortgages made in the first nine months of 2011 wound up at a government agency, according to Inside Mortgage Finance, an industry trade magazine.

The reluctance of banks to keep control of mortgages underscores how distant a recovery is in the home loan market. JPMorgan’s holdings of mortgages to people with stronger credit rose by just 2 percent in 2011, to $76.2 billion, while its home equity loans fell 12 percent.

“We’re getting killed in mortgages, in case you hadn’t noticed,” Mr. Dimon said on Friday.

Banks also face a reckoning for their lax lending standards during the mortgage bubble. A wave of lawsuits, filed by Fannie, Freddie and private mortgage investors alike, has loomed large on the business since the dark days of the financial crisis. JPMorgan last quarter recorded a $528 million expense for restocking its mortgage litigation reserves.

“There’s going to be a long tail to this real estate cycle,” Mr. Goldberg said. “This could go on for years.”

Still, JPMorgan on Friday highlighted some encouraging signs for its consumer divisions. The bank set aside $730 million in fewer reserves for loan losses, as its credit card portfolio showed signs of life. That decision also increased earnings for Chase retail financial services, the bank’s consumer banking arm that offers services like mortgages and checking accounts. The unit earned $533 million in the fourth quarter, up from $459 million a year earlier.

JPMorgan, for all its lingering mortgage issues, has emerged from the financial crisis as one of Wall Street’s most dominant banks. In 2011, JPMorgan stripped Bank of America of its title as the nation’s biggest bank by assets.

Bank of America is struggling more than any other big bank to shed the legacy of the subprime mortgage mess.

“JPMorgan is in the best position for no other reason than they don’t have the troubles that Bank of America has,” said Jim Sinegal, an analyst with the research firm Morningstar.

But the JPMorgan profit engine stalled in the fourth quarter amid the weak economic conditions and as new federal rules reined in fees tied to overdrafts and debit cards, onetime revenue drivers. Revenue last year fell about 5 percent, to $99.77 billion, from $104.84 billion a year earlier.

Mr. Dimon, perhaps Wall Street’s most vocal opponent of the recent regulatory crackdown, called the debit card restrictions “a gross miscarriage of justice.”

JPMorgan also disclosed that a $567 million accounting loss weighed down revenue. The investment bank booked the loss in the fourth quarter tied to the perceived riskiness of JPMorgan’s own debt, reversing a one-time gain from last quarter that propped up earnings across Wall Street. In all, the investment bank’s revenue sank 30 percent in the fourth quarter.

Shares of JPMorgan closed down 2.5 percent, or 93 cents, at $35.92.

The revenue struggles are not unique to JPMorgan, a diversified bank seen as a gauge for the performance of Wall Street. When the nation’s other big banks — Goldman Sachs, Morgan Stanley, Citigroup and Bank of America — report earnings next week, most are expected to detail similar slowdowns in revenue.

“It’s hard to think of a bright spot on the revenue side,” Mr. Sinegal said. “That issue is going to linger.”

But Mr. Dimon on Friday offered hints of optimism for his bank — and the broader state of Wall Street and the economy.

“We have a mild recovery that might actually be strengthening,” he said. And the comeback appears to be “broad.”

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DealBook: JPMorgan’s 2011 Profit Rises 9%

JPMorgan Chase kicked off bank earnings season on Friday with news that its profit rose 9 percent last year, a report diminished modestly by the recent turmoil on Wall Street and a weak fourth quarter.

The bank turned a $19 billion profit in 2011, up from $17.4 billion a year earlier, as its credit card business and commercial lending operation showed signs of improving. The results, which amounted to $4.48 a share, fell slightly short of analysts’ estimates of $4.53 a share.

In particular, the profit engine stalled in the fourth quarter, when JPMorgan earned $3.7 billion, or 90 cents a share, down from $4.8 billion, or $1.12 cents a share, in the same quarter a year earlier. The results matched analysts’ estimates for the period.

The fourth-quarter slump was owed in part to a slowdown in JPMorgan’s sprawling investment bank, which suffered from the sluggish economic recovery in the United States and concerns that the European debt crisis will sweep across the continent.

The investment bank booked a $567 million accounting loss in the fourth quarter tied to the perceived riskiness of its own debt, reversing a one-time gain from last quarter that propped up earnings across Wall Street. In all, the group’s profits sank 52 percent to $726 million in the fourth quarter.

Despite the turmoil in the fourth quarter, Jamie Dimon, JPMorgan’s chairman and chief executive, highlighted the firm’s gradual progress amid broader economic woes.

“I am proud of the work our 260,000 employees have done this past year to continue the Firm’s 200-year tradition of showing leadership and responsibility during challenging times,” Mr. Dimon said in a statement.

The bank’s earnings report comes a day after Mr. Dimon announced the second major shuffling of his management team in a year. Jay Mandelbaum, head of strategy and business development, will leave the bank. And Barry Zubrow, JPMorgan’s risk management chief who guided the bank through the financial crisis, will now head corporate regulatory affairs, among other changes.

With the steady growth in profits last year, JPMorgan has emerged from the crisis as one of Wall Street’s most dominant firms. In 2011, JPMorgan stripped Bank of America of its title as the nation’s biggest bank by assets. Bank of America is still struggling to shed the legacy of the subprime mortgage mess.

“JPMorgan is in the best position for no other reason than they don’t have the troubles that Bank of America has,” said Jim Sinegal, an analyst with the research firm Morningstar.

But the earnings improvement last year was somewhat overshadowed by the fourth quarter woes and a drop in revenue. Revenue fell to $99.8 billion, down from $104.8 billion last year, as new federal rules reined in fees tied to overdrafts and debit cards.

The revenue struggles are not unique to JPMorgan, a diversified bank seen as a good gauge for the performance of Wall Street. When the nation’s other big banks — Goldman Sachs, Morgan Stanley, Citigroup and Bank of America — report earnings next week, most are expected to detail similar slowdowns in revenue.

“It’s hard to think of a bright spot on the revenue side,” said Mr. Sinegal. “That issue is going to linger.”

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DealBook Column: 2011’s Best and Worst in the Financial World

Katy Perry, an artist with EMI, which was sold last year, performing in Buenos Aires.Victor R. Caivano/Associated PressKaty Perry, an artist with EMI, which was sold last year, performing in Buenos Aires.

Please, please take your seats.

Thank you once again for coming to DealBook’s annual closing dinner, where we toast and roast the world of finance — and look ahead to the new year.

We moved this year’s dinner from its usual spot in Manhattan to Paris so Nicolas Sarkozy and Angela Merkel (or Merkozy, as you know them) could attend, given their newfound influence on the markets and the global economy.

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We thought of holding our gathering in Berlin, but then realized this might be the last year we’d be able to do Paris while France still has its AAA credit rating. Christine Lagarde, managing director of the International Monetary Fund, also pointed out that Société Générale could use the extra A.T.M. fees from all of you withdrawing tip money for the coat check.

Not everyone could make it. We mailed Jon Corzine several invitations, but initial reports indicated they were accidentally commingled with his holiday cards. He now says he misplaced the invitations completely and has “no idea” where they could be.

Silvio Berlusconi originally R.S.V.P.’ed “yes” when he saw the menu, but backed out when he learned that “16-year-old Caol Ila” was a single-malt whisky.

But it’s nice to see that so many of you could attend. The seating chart was a bit challenging. Jamie Dimon, chief executive of JPMorgan Chase, is sitting next to Paul Volcker. They’ve agreed to take any discussion of the Volcker Rule outside.

I placed Lloyd Blankfein next to Mark Zuckerberg to ease the underwriting pitch for Facebook’s planned I.P.O. in 2012. I overheard Mr. Zuckerberg ask Mr. Blankfein what holiday gifts he had given his children. Then Mr. Zuckerberg added, “I’m not making small talk, Lloyd — it’s literally the only piece of your personal data I don’t have.”

By the way, Mr. Blankfein, the celebrity chef Mario Batali is graciously catering our dinner and has assured me that blood-sucking squid is not on the menu. I should also note that Mr. Batali has volunteered his services, perhaps to atone for declaring in 2011 that “the ways the bankers have kind of toppled the way money is distributed and taken most of it into their hands is as good as Stalin or Hitler and the evil guys.” Mario is preparing tagliatelle ai funghi e pancetta, which roughly translates to “please don’t put my restaurants out of business.”

I was hoping to invite some leaders of Occupy Wall Street to provide a little balance, but I still don’t know who’s in charge.

Finally, Andrew Mason of Groupon is here. It’s hard to overstate how big a year it was for Mr. Mason. His company went public, he became a billionaire and the daily coupon deals phenomenon he pioneered has seemingly swept the nation. Even his tablemate, Brian Moynihan, chief executive of Bank of America, is getting into the Groupon spirit with an offer of his own: three shares for the former price of one!

And now, on to the toasts and roasts of 2011:

T-Mobile BlackBerry phones. ATT's giant deal for T-Mobile fell apart last year.Andrew Harrer/Bloomberg NewsT-Mobile BlackBerry phones. ATT’s giant deal for T-Mobile fell apart last year.

BIGGEST LOSER ATT’s attempted $39 billion acquisition of T-Mobile may have been the worst merger idea of 2011. Both sides claim the regulatory winds shifted in Washington after the deal was announced. But anyone who was paying even a whiff of attention knew from Day 1 that regulators would block it.

Many have credited T-Mobile’s parent, Deutsche Telekom, and its legal team for walking away with a breakup fee worth about $6 billion. But T-Mobile winds up the biggest loser. The sour regulatory mood will make it harder for T-Mobile to pursue a deal with Sprint, which had been circling the company before ATT arrived. T-Mobile and Sprint are both in worse positions than they were a year ago; both companies have lost customers, and Sprint has a lot less money to spend on an acquisition.

As for Randall Stephenson, ATT’s chief, while the dead deal was clearly a mistake at least it was a relatively cheap one, costing the company only about two months’ worth of cash flow.

BIGGEST WINNER (FOR NOW) Richard Handler, the chief of Jefferies Company, probably deserves a pat on the back — and a double shot of that Caol Ila. He had a tough 2011.

His firm skirted a run on the bank after the collapse of MF Global put the spotlight on Jefferies as the American investment house most vulnerable to European sovereign debt. A credit rating downgrade only fanned the flames. But Mr. Handler stood firm, issuing lengthy denials of virtually any speculation that emerged. And he reduced the firm’s exposure to European sovereign debt by half just to prove to the market that he could. He had little choice, but so far, it’s been a winning strategy. Stay tuned for 2012.

THE RATINGS AGENCIES I’ve invited Douglas Peterson, the newly installed president of Standard Poor’s Ratings Services, mainly because the firm — and its industry peers — performed so miserably. You’re new, Mr. Peterson — you just came over from Citigroup, where you were chief operating officer — so we’ll let you eat with us this time.

But do take note: until the week before the collapse of MF Global, your peer agencies were giving that firm an investment-grade credit rating. As usual, the big ratings agencies did not sound the alarms until long after the fire was raging out of control. In S. P.’s case, it kept an investment-grade rating on MF Global until it filed for bankruptcy protection.

Remember Enron? A.I.G.? S. P. rated those companies with just as much insight. And Mr. Peterson, your firm’s downgrade of the United States last summer seemed aimed more at generating media attention and headlines than helping investors understand the risks of investing in United States Treasury securities. If anything, the downgrade proved how irrelevant the ratings agencies have become: Treasuries have since rallied.

So that you can gain a fuller appreciation of the anger the American public harbors for your firm and industry, I seated you next to Michael Moore, who recently said on Twitter: “Pres Obama, show some guts arrest the CEO of Standard Poors.”

CONSUMER ‘PROTECTION’ I invited both Elizabeth Warren and Richard Cordray to make a point: the bankers in this room waged a successful campaign to keep Ms. Warren from running the Consumer Financial Protection Bureau in 2011. That, in turn, led President Obama to nominate Mr. Cordray, who was rejected by Republicans, again at the behest of Wall Street.

Whether either was the right person for the post is almost irrelevant. What’s clear is that Wall Street is doing everything it can to keep the agency from being able to do its job, and that’s a shame.

Even if you think the financial industry is overregulated or you don’t like the agency’s governance structure, all this political maneuvering sends an awful message to the public: Wall Street banks are actively trying to stymie a start-up agency charged with protecting consumers’ money.

SLEEPER DEAL OF 2011 The sale of EMI Publishing for $2.2 billion to a group led by Sony was hardly the biggest deal of the year, but it might have been the most interesting and undercovered transaction of 2011.

Consider this: EMI’s recorded music unit — the sexy part of the business that produces albums by the likes of Katy Perry and Coldplay — was sold on the same day for $1.9 billion to the Universal Music Group, a division of the French conglomerate Vivendi.

That means the typically boring publishing business, which deals with song copyrights, was sold for more, and it went to a Sony-led group that included boldface-name investors like the media mogul David Geffen; the estate of Michael Jackson; Blackstone’s GSO Capital Partners unit; Mubadala, the investment arm of Abu Dhabi; and Jynwel Capital of Malaysia.

The transaction was orchestrated by Robert Wiesenthal, chief financial officer of the Sony Corporation of America, demonstrating that in this age of digital media uncertainty, the predictable fee stream of a homely business like music publishing has a higher value than an ego-driven trophy asset like music recording.

Watch for more deals of this sort in 2012.

Theodore Forstmann, a pioneer in private equity, died in November after a battle with brain cancer.Jamie Mccarthy/Getty Images For The Promotion FactoryTheodore Forstmann, a pioneer in private equity, died in November after a battle with brain cancer.

REMEMBERING TEDDY Finally, let’s have a brief moment of silence for Theodore Forstmann, one of the pioneers of the private equity business, who died in November after a battle with brain cancer.

In an often-scorned industry, he embodied its best parts. Bold, often brash, sometimes difficult, he was ultimately an entrepreneur’s entrepreneur. And he was introspective enough to have serious doubts about the use of leverage and speak out publicly about it. Most important of all, he donated much of his fortune to underprivileged children.

I’d be remiss if I did not also mention another industry legend who died in 2011: F. Warren Hellman, co-founder of Hellman Friedman, the West Coast buyout firm that once owned Levi Strauss Company and Nasdaq. He, too, gave away much of the “2 and 20” he made.

At a time when the “1 percent” is being ridiculed as selfish and greedy, it is worth remembering the enormous good Mr. Forstmann and Mr. Hellman accomplished. I attended Mr. Forstmann’s funeral and was struck less by the Masters of the Universe in the pews than by the dozens of schoolchildren in attendance — most of them recipients of scholarships financed by Mr. Forstmann.

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