JP Morgan Behind the Eight Ball

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It’s been just less than two weeks since we last reported on the fiasco that is more popularly know as JP Morgan (LSE:JPM) (NYSE:JPM).  We can’t help it if they keep stepping into one muddy mess after another.

CNBC and others have reported that the bank is now under investigations by eight different federal agencies, including the Federal Deposit Insurance Corporation (FDIC), the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency, and the Federal Bureau of Investigation.

About the only bright spot for the bank is that Standard & Poors announced today that it has restored their rating for JPM from negative to stable.  S&P based their reassessment on their belief that JPM “has successfully addressed our concerns related to it Chief Investment Office losses, risk-management practices, and governance issues.”  There exists a somewhat odd difference in perspective between the bank and the U.S. Senate over the $6 billion loss the bank took as a result of inadequate self-regulation.  The bank has call the loss “manageable.”  Senator Carl Levin call it “a runaway train that barreled through every risk warning and lost more than $6 billion.”

As of this week the bank has suffered two more setbacks.  On 27 March a U.S. District Court judge denied JPM’s request to have a lawsuit filed by the Operating Engineers Pension Trust of Pasadena, California against the bank dismissed.  The suit alleges that JP Morgan loaned trust securities to Lehman Brothers in violation of their contract which limited JPM to conservative investments.  The suit further alleges that JPM intentionally loaned the money to Lehman Brothers to help prop them up when it was evident that they were already in deep trouble.  The OEPT claims that their securities lost 85% of their value when Lehman went under.

In a two additional and separate issues, federal authorities have ow disclosed that they are investigating the bank’s dealings with Bernie Madoff and that the bank misstated how [it] may have harmed more than 5,000 homeowners in foreclosure.

Federal prosecutors allege that the bank may have violated regulations that require banks to notify authorities of any suspicious transactions.  While the bank has stated that “We believe that the personnel who dealt with the Madoff issue acted in good faith in seeking to comply will all anti-money-laundering and regulatory obligations,” the Feds appear to have a smoking gun in the form of internal emails circulated up to 18 months before Madoff’s arrest.  In one of those emails a JP Morgan employee revealed that a bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”

As for the 5,000 wronged homeowners, it is believed that the federal government will levy a cash assessment against the bank to remedy the damages done.

The problem at JP Morgan is not so much that it lost $6 billion dollars.  It’s lost more than money.  It has lost credibility.  The more it’s PR department tries to minimize the issues that it faces, and the more the federal government uncovers, the more credibility it will continue to lose.

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