U.S. and European regulators fined banks record amounts this year, imposing penalties and settlements of more than $43 billion as authorities work more closely across borders to clean up the financial sector.

Banks in the United States and Europe are paying for misconduct that includes mis-selling U.S. mortgage bonds, rigging interest rates, and risky transactions such as JPMorgan’s (JPM.N) “London Whale” trades.

Regulators across the globe are making banks dig far deeper than in the past for their misdeeds, led by U.S. authorities who have long been more aggressive and imposed penalties more than 10 times those meted out in Europe.

Fines and settlements paid to U.S. federal and state authorities have cost banks more than $40 billion this year, according to Reuters estimates, led by JPMorgan’s record $13 billion payout last month to a number of regulators for mis-selling mortgage bonds.

European authorities handed out record fines of more than $3 billion. The bulk was due to the European Union’s anti-trust regulator’s record 1.7 billion euro ($2.3 billion) fine this month against six financial firms for manipulating Libor and Euribor benchmark interest rates.

Two trends are clear: regulators are slapping bigger fines on banks in an effort to clean up standards; and regulators appear to be working better with each other as they all strive to get a piece of any payouts.

“The level of cooperation and coordination between international regulators is an increasing threat to regulated firms,” said Richard Burger, partner at British law firm RPC.

“There is enormous political pressure on every single regulator to be seen to be taking their pound of flesh when there is a regulatory failing that crosses borders,” he said.

Many firms are also more willing to settle early to avoid political or public backlash and there is more reporting of misconduct and whistleblowing, industry sources said.

That is likely to leave banks facing the prospect of more big fines and settlements next year.

Banks still face scrutiny over a long list of issues in the United States, and when the European Commission imposed its interest rate settlement it vowed to keep probing rate-rigging.

RISING TIDE

Britain has fined banks and other financial firms and individuals 472 million pounds ($772 million) this year, up 50 percent from 2012 and the third consecutive record year.

Almost three-quarters of the payments stemmed from investigations conducted with overseas regulators, mainly in the United States, who also imposed hefty penalties.

Britain fined 45 firms or individuals, the lowest since 2009, but the average payment jumped to 10.5 million pounds, almost double a year ago and nine times the average of 2011.

Tracey McDermott, the British regulator’s head of enforcement and financial crime, said firms had been told they needed to take a long term view about how to serve customers and markets and the fines levied were part of achieving that goal.

“The financial services industry has to move on from a culture where it rewards revenue generation above all else,” she said.

Few other European countries levied fines. The Swiss financial regulator brought in 6.1 million Swiss francs ($6.8 million) from the disgorgement of profits from two cases, and the Dutch Public Prosecutor fined Rabobank 70 million euros ($95 million) alongside a settlement with U.S. and UK authorities for the manipulation of Libor.

Rabobank’s payouts showed how countries differ. The bank paid out 774 million euros in fines – three-quarters sent to U.S. regulators, 16 percent sent to Britain and 9 percent was for its home regulator.

Payments in the United States are swelled by the large number of watchdogs involved, including national authorities such as Fannie Mae and Freddie Mac, the National Credit Union Administration (NCUA) and the energy market regulator, as well as individual states.

JPMorgan’s mortgage bond settlement, for example, included a $2 billion civil penalty with the Justice Department, $1.4 billion to the NCUA, $4 billion in relief for consumers, and payouts to five states, including $299 million for California and $20 million for Delaware.

Its U.S. rivals Bank of America (BAC.N) and Wells Fargo (WFC.N) have also paid out billions of dollars and European rivals UBS (UBSN.VX), Deutsche Bank (DBKGn.DE) and Royal Bank of Scotland (RBS.L) have also had hefty U.S. fines. ($1 = 0.8968 Swiss francs) ($1 = 0.7316 euros) ($1 = 0.6111 British pounds)

($1 = 0.7315 euros)

Source: Reuters (by Steve Slater)

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A Missouri pension fund has sued JPMorgan Chase & Co (JPM.N) executives and board members over $6.2 billion in trading losses that were revealed last year, citing a recent U.S. Senate report that criticized the bank’s management for failing to catch the bad trades.

The Police Retirement System of St. Louis filed the lawsuit against Chairman and CEO Jamie Dimon, as well as other executives and board members, in State Supreme Court in Manhattan on Monday.

The lawsuit said the defendants breached their duties to shareholders by failing to block the risky trades. The bets were built by a JPMorgan trader who came to be known as the “London Whale.”

A JPMorgan representative was not immediately available to comment on the lawsuit.

At the time of the Senate hearings in March, the bank said in a statement: “We have made regrettable errors and overhauled our risk policies to correct these mistakes, but senior JPM executives always provided information to regulators and the public that they believed to be accurate.”

JPMorgan faces an array of litigation over the trading losses, including other shareholder cases filed in New York state court as well as Manhattan federal court.

In their court papers, lawyers for the St. Louis pension fund highlighted letters from a union pension adviser, CtW Investment Group, that they said “warned the board multiple times that the company’s lack of internal controls and severely flawed risk oversight structure posed serious threats” to the bank.

The letters were from the spring and summer of 2011, according to the lawsuit.

The bank converted its chief investment office, originally intended to reduce risk to the bank, into an “unsupervised proprietary trading operation” that accumulated billions of dollars in high-risk trades, the lawsuit said.

“Although the purpose of JPM’s CIO was to hedge against risk, the company’s board and senior management oversaw its transformation into a high-stakes casino,” said Michael Stocker, a plaintiffs’ lawyer at the firm Labaton Sucharow. “That’s like filling a fire extinguisher with gasoline.”

The lawsuit is a “derivative” case filed on behalf of the company against officers and directors. It seeks damages, as well as corporate governance reforms and other relief.

The case is The Police Retirement System of St. Louis, derivatively and on behalf of JPMorgan Chase & Co v. JPMorgan Chase & Co, New York County Supreme Court, No 651161/2013

Source: Reuters (by Bernard Vaughan)

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Ina Drew, the former JPMorgan Chase & Co (JPM.N) executive who earned millions while in charge of the unit that made the disastrous “London whale” trades, on Friday refused to accept responsibility for the $6.2 billion in losses revealed last year.

Testifying before a Senate panel, the former chief investment officer instead pointed a finger at the traders and managers below her. They did not appear at the hearing because they are in London and outside the Senate’s jurisdiction.

Blame-shifting proved to be a theme of the hearing held by the Senate Permanent Subcommittee on Investigations, even as Chairman Carl Levin hit Drew and other current and former JPMorgan executives hard over past statements he believed to be inaccurate.

The litany of accusations by the powerful panel raises the prospect that the trading debacle will continue to legally dog the Wall Street bank, long considered one of the best managed.

Friday’s hearing and a subcommittee report released on Thursday paint a damning picture of a bank and high-level employees raking in huge payouts while ignoring risks, deceiving investors, fighting with regulators and trying to work around rules as losses mushroomed in a derivatives portfolio.

Drew made $29 million in 2010 and 2011, and Achilles Macris, who supervised the trading book at issue and reported to Drew, made $32 million during the same time frame. They were among the highest paid JPMorgan employees in those years.

Drew, who resigned last May and was long a trusted lieutenant of Chief Executive Jamie Dimon, lamented the loss of her 30-year-career at JPMorgan and defended herself as a “reasonable and diligent” manager.

“Some members of the London team failed to value positions properly and in good faith, minimized reported and projected losses, and hid from me important information regarding the true risks of the book,” Drew said.

“I did not (and do not) believe I bore personal responsibility for the losses in the synthetic credit book,” she said in her prepared remarks.

Senator John McCain from Arizona, the top Republican on the panel, questioned why Drew and others were transferring blame, saying it was hard to explain. “It seemed that the traders seemed to have more responsibility and authority than the higher-up executives,” McCain said.

Dimon was not invited to testify. He has already testified twice before other congressional panels.

LEGAL RISKS

The trading debacle has been a legal and reputational black eye for the largest U.S. bank. JPMorgan’s losses stemmed from bets by London-based Chief Investment Office trader Bruno Iksil on an index for credit default swaps. His outsized positions earned him the nickname “London Whale” from hedge fund traders taking the other sides of his positions.

CEO Dimon was criticized for initially dismissing rumors of a troubled trading position as a “tempest in a teapot” during an April conference call. Less than a month later, the bank disclosed problems with the trading strategy, and later said it lost $6.2 billion from the trades.

The Senate panel based its findings on 9 months of investigation, 90,000 documents and 50 interviews and briefings.

Experts said disclosures from the hearing and the Senate report could provide ammunition to securities regulators and investors pursuing the bank for misconduct over the trades.

“Clearly this report digs up a lot of evidence that can be used in various legal proceedings,” said James Angel, a visiting associate professor of finance at the Wharton School of the University of Pennsylvania. “I’m sure the plaintiffs bar is looking at this very carefully and rubbing their hands with glee.”

The report could also assist the various investigations being conducted by the Justice Department, the Federal Bureau of Investigation and the Securities and Exchange Commission.

A person familiar with the SEC’s inquiry said investigators are focused on how quickly and accurately the bank disclosed the problems in SEC filings, shareholder calls and press releases. The Senate report suggests they were not getting full disclosure.

The SEC and Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment.

The report also gives ammunition to advocates calling for stricter financial reforms, including to regulators crafting the Volcker rule, which proposes to put limits on banks betting with their own funds.

“If derivatives books can be cooked as blatantly as they are in this case without breaking the rules, then the rules need to be revamped,” said Levin, a Democrat.

DODGING BLAME

JPMorgan in January released a report by the bank’s management task force that primarily assigns blame for the trading debacle to three executives beneath Dimon: Ina Drew, Barry Zubrow, the former chief risk officer; and Douglas Braunstein, the former chief financial officer.

On Friday, Drew and Braunstein said blame should be assigned elsewhere. Zubrow was not at the hearing.

Douglas Braunstein, who is now the bank’s vice chairman, criticized outside counsel and auditors at PricewaterhouseCoopers for signing off on a shift from valuing trade positions at the middle of the range to an extreme that made the positions look better.

PwC did not respond to a request for comment.

Levin repeatedly confronted Drew, Braunstein and the bank’s co-head of its investment bank, Michael Cavanagh, with statements they made during the course of the scandal which Levin said were inaccurate or damning.

He read to Drew from a transcript of a phone call in which she advised a London manager to “tweak” daily earnings reports to put them in the best possible light.

He asked Braunstein why he did not tell investors the portfolio containing the whale trades had breached multiple risk limits.

And he took issue with Cavanagh’s characterizations that the trading losses were under control in public statements he made while the losses were still growing.

The executives struggled at times to respond, but largely stuck to their past statements, at times frustrating Levin’s efforts to elicit direct answers. “So much for accuracy,” Levin said at one point.

Source: Reuters (By Emily Flitter and Aruna Viswanatha)

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