Central Perk

sâmbătă, 19 octombrie 2013

Mish's Global Economic Trend Analysis

J.P. Morgan Reaches $13 Billion Deal with Justice Department; Is This a Fair Deal?

Posted: 19 Oct 2013 06:21 PM PDT

The Wall Street Journal reported today J.P. Morgan Reaches $13 Billion Tentative Deal with Justice Department. However a criminal investigation is not yet closed.

J.P. Morgan Chase & Co. has reached a tentative deal to pay a record $13 billion to the Justice Department to settle a number of outstanding probes of its residential mortgage-backed securities business, according to a person familiar with the decision.

The deal, which was struck Friday night, doesn't resolve a continuing criminal probe of the bank's conduct, which could result in charges against individuals or the bank itself and possibly increase the penalty tab. The two sides continued to disagree over an admission of wrongdoing that would end the criminal probe and decided instead to resolve the civil allegations related to the mortgage securities.

The deal includes $4 billion to settle claims by the Federal Housing Finance Agency that J.P. Morgan misled Fannie Mae and Freddie Mac about the quality of loans it sold them in the run-up to the 2008 financial crisis, another $4 billion in consumer relief, and $5 billion in penalties paid by the bank, according to a second person close to the talks. How the consumer relief and penalties get dispersed and distributed is largely up to the government, and those details are still unclear, this person said.

The tentative settlement comes as J.P. Morgan tries to put as many legal woes behind it as possible. Earlier this week, J.P. Morgan agreed to pay $100 million and acknowledge wrongdoing to settle allegations by the Commodity Futures Trading Commission related to its botched "London whale" trades. Last month, the bank agreed to pay $920 million to settle similar charges with U.S. and U.K. regulators related to that 2012 trade.

The task force issued a series of subpoenas to various financial companies, seeking internal documents. Those documents held a number of promising leads, one of which was assigned to federal prosecutors in Sacramento.

Investigators in that case discovered an email by a bank employee, warning her higher-ups that the bank was vastly overstating the value of the mortgages being securitized, according to people familiar with the probe. That employee, who has since left the company, has been cooperating with federal prosecutors, who expect to call her as a witness if the case ever goes to trial, according to people familiar with the case.

While the Justice Department considers the evidence in that case to be strong, officials at the bank strongly disagree, according to people familiar with the negotiations.

In late September, as the Justice Department neared its own deadline to file a civil lawsuit in the case, the bank offered $3 billion to settle the case. Attorney General Eric Holder rejected that offer, and government lawyers prepared to file the suit. The bank then offered billions more, if the government was willing to throw into the settlement separate cases, raising the total price and resolving more of the bank's legal headaches.

As the negotiations intensified in September, Mr. Dimon sought a face-to-face meeting with Mr. Holder to try to resolve the remaining sticking points. The two met Sept. 26 at the Justice Department, but the meeting failed to settle the outstanding issues. As talks continued over the remaining weeks, the size of the deal swelled, but the two sides continued to disagree over an admission of wrongdoing that would end the criminal probe.

On Friday night, Mr. Dimon and Mr. Holder decided they were just not going to come to terms on the criminal issue–and take the deal on the terms where they did agree.

Is This a Fair Deal?

For starters, I am astonished at the massive settlement. $13 billion sounds huge (and it is compared to the typical whitewashing affairs we see).

However, things could have been much worse.

CNN Money notes JPM held "$23 billion in reserves for potential litigation expenses. In a footnote to its SEC filing, the bank said legal costs could be nearly $6 billion above that figure in a worst case scenario."

Perhaps $23 billion, $40 billion, or any amount that wipes out JP Morgan litigation reserves is "fair".

Clearly "fair" is in the eyes of the beholder. I will consider it "fair" if executives of the largest banks are tried and convicted in criminal court. Don't count on it. As astonished as I was about the amount of the settlement, I will be even more astonished if any bank executives are criminally convicted.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Weekly Address: Working Together on Behalf of the American People

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Weekly Address: Working Together on Behalf of the American People

In this week’s address, President Obama said that now that the federal government is reopened and the threat of default is lifted from the economy, there are three places Washington can take action to serve the American people. First, it’s time for a balanced, responsible approach to the budget that grows the economy and shrinks our long term deficits. Second, we must fix our broken immigration system. And finally, Congress should pass a farm bill to give rural communities the opportunity to grow. The President said it’s time to put aside politics and work on behalf of the American people and the country we love.

Click here to watch this week's Weekly Address.

Seth's Blog : Ambassadors and treaties

Ambassadors and treaties

A great ambassador doesn't show up in a foreign land and start complaining about how everything here is so different. She doesn't insist that people start acting the way they act back home. And most of all, she welcomes the idea that people might have different goals and desires than the people she grew up with--in fact, different than she has.

And every great treaty causes both signatories to change something substantial, something important, in exchange for accomplishing a bigger goal via cooperation.

Your customers need an ambassador. Someone who is open to hearing what they have, need and want, not merely a marketer intent on selling them a particular point of view. Once you understand someone, it's much easier to bring them something that benefits everyone.

And your partners need you to honor the spirit and intent of the deals you do with them. The goal of a long-term relationship isn't to find the loophole that lets you do what you want. Instead, figure out what you're giving up and what you're getting in return.

Companies (and countries) often under-invest in ambassadors and under-value the promises they make in treaties. In the connection economy, it now makes sense to over-invest instead.