Federal regulators are probing whether several big banks deliberately mispriced mortgage bonds in the years following the financial crisis, the Wall Street Journal reported, citing people close to the inquiry.

The new investigation is a potential blow to the banks as they have already paid billions of dollars in penalties and fines to various federal agencies following scrutiny of their conduct leading up to and during the market panic of 2008.

Banks continued to hold billions of dollars in hard-to-price assets on their books even in the aftermath of the credit crisis.

Regulators are now seeking information about whether banks made “significant misrepresentations” about some of those assets to make deals, the Journal said. (http://link.reuters.com/xad85v)

The probe focuses on whether traders bought or sold residential mortgage-backed securities at artificially depressed or inflated values from around 2009 through 2011, the paper said.

The other parties in such deals would typically be rival banks, hedge funds and other large investment firms, according to the paper.

The banks being probed include Barclays Plc (BARC.L), Citigroup Inc (NYS:C), Deutsche Bank (DBK.DE), Goldman Sachs Group Inc (GS), JPMorgan Chase (JPM), Morgan Stanley (MS), Royal Bank of Scotland Group (RBS.L) and UBS AG (UBSN.VX).

The investigation, which began less than a year ago, is still at an early stage and may not lead to enforcement action. Subpoenas have been sent to several firms to gather information, according to the newspaper.

The probe is being conducted by the Securities and Exchange (SEC) and the special inspector general for the Troubled Asset Relief Program (Sigtarp).

Spokesmen for the SEC, Sigtarp and JPMorgan declined to comment to the newspaper.

RBS spokeswoman Mary Taylor declined to comment to Reuters on the Journal report.

None of the other parties could immediately be reached for comment by Reuters outside of regular U.S. business hours.

Source: Reuters

The post Banks face new probe over mortgage bond trades post 2008: WSJ appeared first on Investadvocate.

A U.S. Treasury Department watchdog tried to examine whether JPMorgan Chase & Co (JPM.N) interfered with a regulatory probe into its relationship with convicted felon Bernard Madoff but the largest U.S. bank was able to nip the inquiry in the bud, a government official said on Monday.

The U.S. Treasury Department’s Office of the Inspector General was examining whether JPMorgan interfered with the Office of the Comptroller of the Currency’s attempts to probe the bank’s relationship with Madoff, Rich Delmar, counsel to the inspector general, said in an email to Reuters.

Madoff had also separately told U.S. authorities that JPMorgan – the bank he had used during his decades-long investment scam – had tried to stop the OCC from getting information about their relationship, Delmar said.

“The OIG sought to obtain information from the bank on this issue, in order to test Madoff’s assertions,” Delmar said.

He added that his office tried to subpoena the bank for information, but JPMorgan contested the subpoena and the U.S. Justice Department decided not to enforce the subpoena. The OIG dropped the inquiry.

A source briefed on the situation said JPMorgan invoked attorney-client privileges to refuse to turn over the documents the OIG sought. The Justice Department agreed with the bank, the person said.

Bryan Hubbard, a spokesman for the OCC, declined to comment. Jerika Ricahrdson, a spokeswoman for U.S. Attorney Preet Bharara, where the investigation into JPMorgan’s dealings with Madoff is taking place, also declined to comment.

JPMorgan is nearing a settlement of the Madoff case that would include $2 billion in penalties with regulators in Washington and Bharara’s office in New York, several sources told Reuters last week.

The settlement would fault the bank for turning a blind eye to warning signs about Madoff’s firm, which was revealed in December 2008 to be the operator of a massive Ponzi scheme.

Source: Reuters (by Emily Flitter and David Henry)

The post JPMorgan blocked probe in Madoff case: government official appeared first on Investadvocate.

A federal bribery investigation into whether JPMorgan Chase & Co. hired the children of key Chinese officials to help it win business is just the latest in a series of legal and regulatory headaches for Chief Executive Jamie Dimon.

Dimon piloted the bank through the financial crisis, but it is now facing at least a dozen investigations from federal agencies and state and foreign governments, including over the “London Whale” trading scandal that cost it more than $6.2 billion.

 

 

In the latest probe, the Securities and Exchange Commission (SEC) is looking at whether the bank’s Hong Kong office hired the children of powerful heads of state-owned companies in China with the express purpose of winning underwriting business and other contracts, a person familiar with the matter said.

The SEC is questioning JPMorgan’s relationships with at least two families in China that may have legitimate explanations, the source said.

U.S. law does not stop companies from hiring politically well-connected executives. But hiring people in order to win business from relatives can be bribery, and the SEC is investigating JPMorgan’s actions under the U.S. Foreign Corrupt Practices Act.

SEC spokeswoman Florence Harmon declined to comment on the investigation. A Hong Kong-based spokeswoman for the bank declined to comment beyond what was in the bank’s regulatory filings and said the bank was cooperating with probes.

REGULATORY HEADACHES

Whatever the outcome of the latest investigation, Dimon’s time is increasingly being consumed by regulatory matters.

Federal prosecutors on Wednesday brought criminal charges against two former JPMorgan traders, accusing the pair of deliberately understating losses in the “Whale” scandal. The SEC is seeking an admission of wrongdoing from the bank in a parallel civil action, a rare step for the government agency.

Earlier this month, the bank revealed that it was facing parallel criminal and civil probes by the U.S. Department of Justice in California into mortgage bonds that it sold before the financial crisis.

And last month, the bank agreed to pay a $285 million penalty and give back $125 million of trading profits in a settlement with the Federal Energy Regulatory Commission for alleged power market manipulation. JPMorgan neither admitted nor denied violations.

Since 2011, the bank has been writing in its quarterly filings with regulators that it “is currently experiencing an unprecedented increase in regulation and supervision, and such changes could have a significant impact on how the firm conducts business”. In its last quarter, JPMorgan estimated that it could have legal losses that are $6.8 billion beyond an undisclosed sum that it has already set aside to cover those charges.

Wall Street analysts may be understating the extent of the bank’s future litigation expenses, said independent analyst Charlie Peabody of Portales Partners.

JPMorgan’s annual litigation costs have been around $4.9 billion for each of the last two years, and Peabody expects the cost will be $1.5 billion to $2 billion over each of the next two quarters. On average Wall Street expects roughly $300 million to $500 million per quarter, he added.

While major U.S. banks have faced a litany of probes since the financial crisis, Dimon has repeatedly griped in public about how regulations designed to prevent the next financial crisis are stifling banking and its ability to help the economy.

A report from a U.S. Senate subcommittee described an episode where Dimon shouted at his then-chief financial officer for giving information to a regulator. The bank’s board of directors has made it clear to the chairman and chief executive that he must improve his relationship with regulators, a source familiar with the matter told Reuters earlier this year.

Even with heavy litigation costs, JPMorgan posted $21.28 billion of net income last year, its highest level ever even after it suffered from $6.2 billion of trading losses from the bad derivatives bets made by Bruno Iksil, the trader nicknamed the “London Whale”.

“ELEPHANT HUNTING”

In the China case, the New York Times said that JPMorgan at one point hired Tang Xiaoning, the son of Tang Shuangning, chairman of the China Everbright Group, a state-controlled financial conglomerate. He also had been a Chinese banking regulator, the Times reported.

After the younger Tang joined JPMorgan, the bank secured several important assignments from the Chinese conglomerate, including advising a subsidiary on a stock offering, according to the newspaper.

Another matter the SEC is probing is JPMorgan’s hiring Zhang Xixi, the daughter of a now-disgraced Chinese railway official. The bank went on to help advise the official’s company, which builds railways for the Chinese government, on its plans to go public, the Times said.

The bank has not been accused of wrongdoing, the New York Times said, citing a government document. There is no documentary evidence that Zhang Xixi or Tang Xiaoning were unqualified, but the SEC is checking whether the bank’s Hong Kong office routinely won business from companies connected to its employees, the newspaper reported.

Marie Cheung, a Hong Kong-based spokeswoman for the bank, said on Sunday that the bank had publicly disclosed the investigation in its quarterly regulatory filing earlier this month, and was cooperating with regulators.

The quarterly filing said that the SEC’s enforcement division had requested “information and documents relating to, among other matters, the firm’s employment of certain former employees in Hong Kong and its business relationships with certain clients”.

The practice of hiring politically-connected bankers in China was widespread in the early to mid-2000s, when Wall Street firms engaged in so-called ‘elephant hunting’, a term used to describe the chasing of mandates to manage the multi-billion dollar stock offerings of the country’s big state-owned enterprises.

One of the more well-known China bankers from that era is Margaret Ren, the daughter-in-law of former Chinese Premier Zhao Ziyang, who has worked at several banks. Most major investment banks have employed a politically connected Chinese banker, whether a high level professional such as Ren or a college age associate, at some stage in the last decade.

Many senior investment bankers in China now feel that the heyday for such underwriting contracts has passed, with far fewer jumbo state-owned company listings happening. But banks and private equity firms alike still prize connections to top decision makers.

Source: Reuters (by David Henry)

The post China probe is latest legal headache for JPMorgan appeared first on Investadvocate.