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Josh Rosner Torches JP Morgan

Posted by Larry Doyle on March 15, 2013 6:17 AM |

It is not often that an industry insider unleashes a report on a major financial institution that makes me sit up and immediately think, “I need to share this . . . . NOW.”

Well, I just sat up.

If you have any doubts that our “too big to fail” banks are out of control and hence “too big to regulate” and “too big to prosecute,” you will want to read a report written by Graham Fisher’s Josh Rosner.

I can assure you this report will generate a lot of focus from even the generally compliant financial media. I thank the friend of Sense on Cents who brought it to my attention. I recommend you put your coffee down as Rosner writes, >>>>>

JPM appears to have taken a page out of the Fannie Mae playbook in which the company perfected the art of cozying up to elected officials, dominating trade associations, employing political heavyweights and their former staffers and creating the image of American Flag-waving, apple-pie-eating, good corporate-citizen, all of which supported an “implied government guarantee” and seemingly lowered their cost of funding.

Additionally, rather than being driven by the strength of its operations and management, many of the JPM’s returns appear to be supported by an implied guarantee it receives as a too-big-to-fail institution.

JPM has a reputation of being the best managed of the biggest banks. In our reviews we could not find another “systemically important” domestic bank that has recently been subject to as many public, non-mortgage related, regulatory actions or consent orders.

The firm’s pride in a disputable “fortress balance sheet” – which underestimates their off-balance sheet risks – appears to have given investors false comfort, after all poor risk management and control failures are almost always the major drivers of capital destruction.

Got your attention yet? Rosner does not let up in deep diving into JP Morgan’s rackets including:

London Calling: The Whale
In the wake of at least $6.2 billion in losses and an earnings restatement in the CIO’s office, which manages JPM’s excess cash and should therefore be run by top talent, the regulatory response has been surprisingly muted. The two reports issued by JPM in early January were unrevealing and illustrate the current state of regulatory capture where large financial institutions are concerned.

Internal Control Problems are Pervasive 
JP Morgan’s list of regulatory violations over the past five years is long, diverse and crosses legal and regulatory jurisdictions. Many of these infractions are for repeated violations of specific control failures, which the Company had previously agreed to remedy.

What else is in this can of “whoopass” that Rosner breaks out? In what could only be compared to a “rap sheet,” Rosner highlights issues within:

Anti-Money Laundering and Bank Secrecy Act issues
Segregation of Client Funds
Commodities Violations
Fictitious Trade/Wash Sale
Consumer Abuses
Muni Market Manipulations
Energy Regulatory Problems
International Actions
Refusal to Cooperate with Authorities

Consistent with the purpose of this report we felt it important to consider outstanding internal control, headline and other extraordinary items that could materially impact JPMs profitability and potentially highlight further breakdowns in controls.

Wait, there is more. Rosner would seem to indicate that JPM has now overtaken Goldman Sachs in asserting,

JP Morgan may be without peer in its spending on direct and indirect lobbying and PR. Its effort to capture legislators, neuter regulators and influence policymakers are reminiscent of Fannie Mae before it as the firm has retained, employed or had revolving door relationships with more former legislators, legislative staff and executive branch employees than perhaps any other financial firm in history.

As of mid-2012 the firm had he second largest corporate political action committed and employed at least 48 lobbyists including at least 14 in-house lobbyists who are former congressional and federal staffers or legislators. Its lobbying power is not only direct but also the result of domination of several of the largest industry trade associations.

This report by Rosner reminds me of a quote that a dear friend once shared with me in which he stated, “If these were not trading monitors but sewing machines, the Board of Health would come in here and shut it down.”

I do NOT think Jamie Dimon is going to have a good day.

JP Morgan Chase: Out of Control

Larry Doyle

Isn’t  it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Peter Scannell

    JP Morgan’s top legal eagle is the former SEC Enforcement Director Stephen M. Cutler. Everyone was told at the time Cutler was hired to “ensure regulatory compliance” throughout JPMorgan.

    But wait a minute, isn’t Cutler the same SEC Enforcement Director that missed, and/or, looked the other way from 2000-2005, with ENRON, WORLDCOM, TYCO, HEALTHSOUTH, BOGUS RESEARCH SOLD BY INVESTMENT BAMKS (including of course JPM), MUTUAL FUND SCANDAL(including JPM) – all were exposed by whistle-blowers.

    Then there were the MADOFF and STANFORD Ponzi schemes that everybody (evidently, with the exception of Cutler) knew were a scam for years!

    So with all these missed (wink, wink) opportunities and more when he was our nation’s top securities cop – how in the world has he missed all the extraordinary breaches and betrayals under his watch now at JP Morgan?

    Where is Cutler anyway – you never hear a single word coming out of his mouth since he was deposed by the SEC OIG in March of 2009 at the U.S. Attorney’s Boston Office?
    Hell bells

  • Peter Scannell

    LD, Are you listening to the “blame others game” testimony of Ms. Drew?

    JP Morgan’s former CIO “trusted others” without verifying the accuracy of their findings. How convenient that those Ms. Drew suggest are responsible for the $6.2 billion dollar debacle did not respond to the oversight sub-committee’s subpoenas’ because they reside over-sea.

  • LD

    Let’s see here:

    Door #1 : Pass the buck

    Door #2 : Too big to regulate

    Door #3 : Our models were wrong

    Wall Street, Washington, and the regulators are ALL in bed with each other.

  • Peter Scannell

    My hat is off to Senator Levin, Senator McCain, and the staff of Senate Homeland Permanent Subcommittee on Investigations for exposing the utter contempt those testifying in today’s hearing had, and have, for following both the spirit and intent of regulatory adherence.

    Companies don’t ignore regulatory compliance, executives do!

    We can’t get the Volker Rule in place fast enough!

  • LD

    Would seem that the regulators themselves allow for the disregarding of their rules and regs. Check a few boxes and move along.

    • Peter Scannell

      The OCC, as with all regulators, must trust but verify.
      Tweaking the spread a basis point or two, as Ms. Dreadful Drew suggested in an email, to disguise the magnitude of the potential losses certainly has to be a questionable practice.

      Yes LD there were red flags a plenty – that’s why the press pick it up first, ie “The London Whale.”

      It’s never a good thing for our markets when bad behavior in the financial sector is made public by individuals, whether it is the press or a whistleblower, rather than the cops on the beat!

      Did you catch Corrupt Cutler in the first row glaring at Drew the Dreadful after the first break – it appeared he was giving her a few choice words.

  • Peter Scannell

    LD, what continues to deeply disturbs me is the nation is still licking our vicious wounds from being jumped from behind by Wall Street this last decade or so, and we continue to ask those who may dutifully attempt to regulate, to go into a pearl handle AK-47 gun fight with a second hand, short bladed knife.

    Remember LD, a stunning 10% of SEC exams have been referred to the SEC Enforcement Division in the last 3 to 5 years for fraudulent behavior egregiously harming investors, with much of the fraud coming from the same culprits over and over again!

    Can you imagine what those numbers would look like if more than 8% of investment advisors were examined?

    It ain’t always the cops fault – throwing the baby out with the bath water is not in our best interest, arming the cops to the teeth would be preferred, and that upgraded gun power pays for itself!

    The subcommittee was good government today – I call balls and strikes – JP Morgan and friends threw mostly balls outside – while Senator Levin threw all high and tight strikes!

    Heir apparent Mike Cavanagh – after this boondoggle – long odds.

  • Obsvr-1

    The public exposure of this BS is all political theater, the illusion of concern and outrage, with no actionable results. Sometimes I wish they would just STFU to keep the blood pressure in check.

    WTF are we supposed to do when the enforcement (cops) are as or more corrupt than the criminals and the oversight entity is so myopic they couldn’t hit their ass with both hands.

    Our (We the People) only hope is for congressional turnover to bring in more “libertarians” (constitutionalist) like Rand Paul, Ted Cruz, Mike Lee, Jason Chafetz, to shake things up and change the status quo … else we are all toast.

    What we have in congress is a collective group of poster children for term limits !!!!

  • Russ

    Not to mention that JP Morgan was Madoff’s bank and they put a bank liaison on the Madoff account who had never worked at a bank before. They went for the dummy factor.

    There were internal emails showing that they thought something was up. They liquidated their own Madoff holdings while allowing their clients to continue to buy in (not informing them that they themselves didn’t like the smell and had gotten out.) they are another Goldman Sachs.

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