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
Fictitious Trade/Wash Sale
Muni Market Manipulations
Energy Regulatory Problems
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.
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.