A list of all the reasons why JP Morgan may be facing the biggest bank fine ever

Image: Reuters/Larry Downing
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On Tuesday (Sept. 24), the Wall Street Journal reported that JP Morgan was offering the government $3 billion to settle (paywall) an unspecified number of criminal probes after the Department of Justice threatened to file suit in an investigation of its pre-crisis mortgage dealings. Yesterday, it reported that regulators are looking for something like $11 billion in compensation (paywall), including $7 billion in penalties and $4 billion in consumer relief.

These numbers are still in flux, but depending on how many cases the payment resolves, it would likely be the largest single-bank payout in the history of financial regulation, supplanting HSBC’s $1.92 billion money-laundering penalty.

We realized that we’re having trouble keeping track of all the trouble the largest bank by asset size in the United States has found itself in. Here’s our cheat sheet (pun intended):

Outstanding investigations (2013)

…the [Department of Justice], [Commodity Futures Trading Commission], [Securities and Exchange Commission], and various state attorneys general, as well as the European Commission, UK Financial Services Authority (now known as the Financial Conduct Authority), Canadian Competition Bureau, Swiss Competition Commission and other regulatory authorities and banking associations around the world

  1. Residential mortgage-backed securities. The big kahuna at the heart of the recently reported settlement talks: The Department of Justice, the New York State Attorney General, and the Federal Housing Finance Administration are investigating JPM for allegedly misrepresenting the quality of the underlying home loans in mortgage bonds it sold. US taxpayers took losses on $33 billion of those loans when the government bailed out housing lenders Fannie Mae and Freddie Mac in 2008.
  2. Obstructing regulatory probes. The Manhattan US Attorney is looking into whether JPM employees criminally obstructed an investigation (see below) into alleged electricity market manipulation by the bank.
  3. Hiring the children of powerful Chinese politicians. Is this bribery, or just a good old-fashioned nepotism? A spreadsheet connecting recently-hired princelings to specific deals may be the difference.
  4. Maybe they knew about the Madoff Ponzi scheme and didn’t tell anyone. According to an internal e-mail from a JPM employee more than a year before financier Bernie Madoff was arrested for defrauding investors, an 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.”
  5. Libor manipulation. The bank is being investigated for its alleged part in efforts to manipulate Libor, a self-reported benchmark interest rate used as a reference for financial instruments around the world. In its most recent quarterly report, it noted inquiries, including subpoenas, from:
  6. Today, the National Credit Union Administration filed suit against JP Morgan and twelve other financial institutions for manipulating Libor.
  7. London Whale criminal investigation.  While the bank itself has settled institutional allegations (see below), two former JP Morgan executives have been indicted for fraud charges related to the bank’s $6.2 billion loss on credit derivatives last year.
  8. Manipulating a corporate bond index. The Commodity Futures Trading Commission is preparing an enforcement action against the bank for manipulating markets in connection with the London Whale trade.

Settled investigations (2013)

  1. London Whale. The bank paid $920 million to four different regulators earlier this month to settle compliance failures that led to the loss.
  2. Taking advantage of credit-card customers. The company’s retail bank paid $80 million to regulators and $309 million in refunds for charging customers for credit products they did not authorize or receive.
  3. Manipulating electricity markets. The bank paid $410 million to the Federal Energy Regulatory Committee for manipulating electricity markets.
  4. Foreclosure irregularities. US State Attorneys General investigated the use of automatic signatures and other illegal practices used by banks to foreclose on borrowers; as part of a national settlement, JP Morgan paid $1.96 billion in assistance to homeowners and cash payments to affected borrowers.

Settlements paid so far this year: $3.68 billion.

Spending on litigation in 2010, 2011 and 2012: A total of $17.3 billion, according to the bank’s annual report (pdf, p.325).

How much the firm expects to spend in litigation in 2013: At least $3.7 billion and perhaps as much as $9.8 billion, according to the report.

The firm’s net income in 2012: $21.2 billion

Are we missing any major JPM investigations? Let us know in the annotations.