U.S. Secretly Halted JPMorgan’s Growth for Years

https://www.bloomberg.com/news/articles/2018-10-26/jpmorgan-s-secret-punishment-u-s-halted-its-growth-for-years?srnd=premium

by marklyon • 8 years ago

211 133 8 years ago

bloomberg.com

tehwebguy• 8 years ago

Wish it had been public but I’m still okay with this.

im_down_w_otp• 8 years ago

The tone of this article is really weird.

It openly admits that various banks we're being constrained due to their notorious bad behavior, but casts those constraints in a passively negative light, and then tacitly celebrates that these bad actors are now less constrained to act badly.

hnmonkey6• 8 years ago

Yeah it's a pretty odd article. It seems like things were working as they're supposed to and yet it implies that it's gonna be great now that the regulations have been lifted by the Trump admin. Unfortunately though, I'd imagine the banks will just continue with their bad behavior now that the shackles are off and it seems like there won't be anything in their way to slow down or halt their plans. Doesn't seem like a good thing really...

wallace_f9• 8 years ago

I don't find it odd. Economists are typically skeptical of government picking winners and losers. Here this is mentioned as the result of an unwritten rule, and as the title says, it was not done transparently.

travmatt• 8 years ago

The best part is how scrupulously Michelle Davis avoided any uncomfortable mentions of the crimes that brought said punishments. Wells Fargo’s business tactic of forcing their sales staff to commit fraud and identity theft is instead described as “a pattern of lapses and abuses”.

rayiner2• 8 years ago

Wells Fargo’s business tactic of forcing their sales staff to commit fraud and identity theft

That’s just a dishonest characterization. Wells Fargo didn’t “force” their staff to do any such thing. Staff gamed an incentive structure and WF didn’t catch it. “Lapse” is the most accurate characterization.

cft• 8 years ago

I had an interesting experience in Wells Fargo around 2012. I had probably 10 business accounts there, including the main receivable account, as well as an account from which about 7 contractors were paid monthly to the tune of $100,000/mo. I was the only signatory to the account, the only person with a login. I had my personal accounts attached there as well. A some point I log in into WF from my regular office laptop (static IP) and instead of the account balances I see a warning: your access has been restricted due to security. Please call an 800 number. I log in from my phone via different IP, same result. My attempts to talk to the assigned business banker went nowhere: she repeated the same number. When I called that number, I got treated like a criminal, I got yelled at and I was told that all accounts needed to be renumbered, and the previous accounts would disappear including the account history. With multiple vendors and contractors, renumbering accounts is true hell. When I asked this person about the alternatives and for a reason for this action I was told that this was done "for my safety", and if I needed the details they could only be obtained via a subpoena. I tell her that according to my knowledge, a subpoena can be obtained only during a civil litigation, and I am asking her if she invites her customer to litigate against the bank? She rudely responds that if I do not want my accounts renumbered, she would leave this as as (with the security warning and no account access). Since this is business critical, I acquiesce and she removes the warning, but the accounts are read-only now. She then tells me that I need to go to a branch, killing my workday. At the branch a salesperson tries to sell me their new accounts and packages (that are of course worse than the original ones). When she realizes I am not an easy target, she just asks me if I am ready for the account renumbering. I ask her if my accountants will have access to the CSV - without this we cannot even make quarterly tax payments. She says sure. I ask her that just in case, I want to download the accounts (all 10 plus 4 personal ones). She says go ahead on your laptop (like I am paranoid, I don't need this). I ask her if they have WiFi in the branch. Not for me. No problem, I tether to my phone (for 2012 it was advanced) and download. Then she hits the button- the accounts are completely gone! Only the end balances got transferred to the new accounts. I leave. Then I call Wells Fargo and ask how I can get the CSV histories. A business Banker tells me that she can fax the hard copies of each monthly statement for $12 per statement per account! When I discuss this later this awful experience with my regular business banker at my branch, I ask her if higher balance accounts get treated the same. She says that my accounts (low 7 digit balance) are too small, but starting from 8 digit, you get a different treatment! I still cannot understand what kind of "safety" a new account number can provide, because every time I write a check I disclose my account number.

ackidacki2• 8 years ago

It's pretty bad if you ask me. A governments job is to follow the law too and not use its discretion in 'unwritten law' that is secretive.

No problem if they publicly said they would do this, but this way is precisely the problem of developing countries. You wouldn't think it would happen in America.

specialp• 8 years ago

Well their job (The Office of the Comptroller of the Currency[1]) by law is to regulate banks for systemic risk. Recall that this same government bailed out the banks due to systemic risks. JP Morgan is then participating in risky activities and wants to expand thus becoming more important in the banking system. The government pushes back as it has had transgressions.

The whole "unwritten rule" thing is kinda nonsense. The OCC which was preventing the expansion was chartered to ensure the soundness of the banking system. That is pretty arbitrary and they have the authority to arbitrate on that. That sounds like they can use their discretion.

What you would think would not happen in America is that the government bails out private banks that behaved badly. If it were truly American capitalism they would fail. Banks would then not be able to become so large due to people and banks not wanting to have too much liability with any one institution. So it is inconsistent to have a system where the government cannot use their discretion in the growth of banks, yet be on the line for a huge bailout to stop the economy from collapsing when the banks get too greedy.

[1] https://en.wikipedia.org/wiki/Office_of_the_Comptroller_of_t...

intended4• 8 years ago

This is a financial paper championing it’s core audience.

For example it makes no mention of the harm caused 10 years ago in 2008, and the causal link between bank behavior and the final disaster.

Instead it is painted as an unrighteous limit to the banks natural path, using hidden tools to curb their growth.

Wsj, Bloomberg etc would assume that profitable growth at any cost is good (except of course at the cost of bad PR).

Regulations and limitations are bad and simply evil barriers to firms manifest destiny.

Don’t put much stock in it.

guelo• 8 years ago

The law says that the regulator has a bunch of power to regulate the banks. They are following the law and the constitution, all of it. Stop making up bullshit conspiracy theories.

jayd162• 8 years ago

Lots of court filings and records are sealed. Its really not surprising at all. It's not really unwritten law just because it wasn't public.

pfarnsworth• 8 years ago

Agreed. I was curious what this was above, then as I started reading it, I was saying to myself "wait, I thought this was actually well-known that these TBTF banks were being curtailed out of punishment for their behavior." I don't see how this was secret, nor do I think it was even a problem since they appear to have been doing extremely well since then even with their growth "halted".

mmanfrin• 8 years ago

Recently, Bloomberg has had some very stilted articles -- editorial tone pushed in to articles and choice of coverage. It feels odd, and it feels wrong.

mohammedbin2• 8 years ago

They and some other finance newspapers do seem like the last bastion of separation of facts and opinions

intended4• 8 years ago

Dunno, this article seems pretty much par for the course when it comes to reporting by financial magazines on industry.

Pro business (especially finance), anti regulation, with little respect or care for regulations and no admission of culpability and harm.

JumpCrisscross• 8 years ago

tone of this article is really weird

The limits make sense, the secrecy not so much. That guarantees an odd tone for an article to be read by (a) JPMorgan Chase shareholders and (b) Americans who don’t want another financial crisis.

cheriot• 8 years ago

That's common when the financial press is talking about financial companies. Remember their audience.

Edit: I'm mainly thinking of Bloomberg and WSJ. The Economist is better on this one.

mrhappyunhappy2• 8 years ago

Of course, that evil Obama administration, they punished little billy for not playing nice, boohoo.

slededit• 8 years ago

During that time period I held investments in JPM. This was material information that should have been available to investors.

gcb0• 8 years ago

"regulators under President Donald Trump, the people said, it’s planning to open 400 branches"

really? "the people said"? who write like this?

grzm• 8 years ago

It's part of Bloomberg style guide.

DiabloD3• 8 years ago

Please quote exactly where in Bloomberg's style guide it says to write like that. Parent isn't wrong, that's a absolutely horrendous way to write.

vxNsr2• 8 years ago

JPMorgan has racked up more than $30 billion in penalties, legal costs and related obligations since the 2008 financial crisis, some of which stemmed from its acquisitions of Bear Stearns Cos. and Washington Mutual Inc.

So they were being punished for agreeing to purchase companies that were failing and that Obama had pushed them to buy... and then he turned around and fined them for the crimes these previous companies committed.

I don't think JPM is innocent in the 2008 debacle as is outlined later on in the article, but it just rubs me wrong that they were punished for BSC and WMI.

hnmonkey6• 8 years ago

It seems that if you don't punish them for the bad things the companies they acquired did then companies will just do bad things and then get acquired, even by another subsidiary or holding company just to evade the laws and regulations. Isn't that a huge loophole you'd be opening?

TaylorAlexander• 8 years ago

Makes sense to me. Unpunished crimes could be seen as an existing liability, and something the parent company acquires when they buy the violating company.

omegaworks• 8 years ago

This was also strangely worded. Did the penalties come before or after the acquisitions?

Why should penalties on a company go away if that company gets acquired by another?

nine_k• 8 years ago

I can imagine that paying for the wrongdoings of the banks being bought was a part if the deal.

AnthonyMouse4• 8 years ago

I don't think JPM is innocent in the 2008 debacle as is outlined later on in the article, but it just rubs me wrong that they were punished for BSC and WMI.

Once their crimes are public knowledge, the expected cost of the future penalties should be priced into the purchase price. Unless the penalties were larger than expected (and if anything they were smaller), they got what they paid for.

_ptgt• 8 years ago

I'm not familiar with the specifics of how the negotiations actually went down, but I can't imagine negotiations work like this when regulators are telling you "You must buy Company X" and you weren't interested in acquiring Company X to begin with.

Purchase prices only reflect a acquirer's view of the value of Company X under market conditions, which seems to have clearly not have been the case when the acquisition occurred.

wahern• 8 years ago

IIRC, Bank of America was told in no uncertain terms by Bernanke and Paulson that they were buying Merrill Lynch. It was a shot-gun wedding at a pivotal moment in the crisis.

I don't remember if JP Morgan had a gun to their head, but there was likely significant pressure. Combined with the fast pace of events and uncertain liability (the crimes were not all known), the purchase prices were very rough guesses.

I hesitate to say that it was unfair that BofA and JPM were punished for the sins of the banks they bailed out. For one thing, neither of them were exactly innocent. Secondly, 10 years on they're both doing really well. While it's great they both took one for the team, so to speak, it's not like either made a great sacrifice.

wj• 8 years ago

It kind of felt like to me that the government had a backdoor agreement in place for them to purchase WM well before they declined to offer WM a bailout and declared them insolvent. It was a matter of hours between those two events and there is no way any due diligence was done and negotiations couldn't happen that quick.

I had bet money on the bailout so I was bitter for a while. First real market lesson for me.

bsmrea• 8 years ago

Both the Bear Stearns and Washington Mutual purchases were during the Bush administration.

maxxxxx• 8 years ago

I find it funny how the partisans blame the bailouts on one party or the other but in reality it was one of the few perfectly bipartisan efforts during the last decades.

vxNsr2• 8 years ago

you're right, I should've been clearer, the fines came from the Obama admin.

ejstronge• 8 years ago

that Obama had pushed them to buy

This is just anti-Democrat bias. How could Obama have forced this sale when the election hadn’t even taken place?

https://www.nytimes.com/2008/03/16/business/16cnd-bear.html

travisgriggs• 8 years ago

I scanned the article title. I thought “huh”.

I saw the source (Bloomberg). I thought “oh”.

Post “the big hack” effect. Is that bad?

mohammedbin2• 8 years ago

It is bad because you are willing to believe one side (composed of multiple companies) when it's in their interest to say what they are saying and completely discount no just their article but their publication.

micv• 8 years ago

The Great Depression II was on the cards in 2007/2008 before governments took on gargantuan debts to brush it under the carpet. We're all paying for that with governments straining under comically heavy debt loads and interest rates held stupidly low long-term to avoid bankrupting the banks. The last thing we should be doing is allowing the same corrupt institutions which created the crisis loose to do it all over again. It will all just happen again with no room for manoeuvre left.

radicaldreamer• 8 years ago

That’s already guaranteed, you can see bubbles everywhere you look today and all of these institutions have grown bigger

MagnitudeFC• 8 years ago

... and th biggest bubble of them all might be in early stage startups..

hendzen2• 8 years ago

1) The 700B in assets distributed via the Troubled Asset Relief Program (TARP) have all been sold by the government, earning 15.3B in profit in the process [0].

2) The federal funds overnight rate has been raised 4 times in the last year with more raises planned [1].

3) While the federal debt load is high, the actual annual interest paid by the government in servicing the debt is in-line with historic norms [2].

[0] https://projects.propublica.org/bailout/

[1] https://fred.stlouisfed.org/series/EFFR

[2] https://fred.stlouisfed.org/series/FYOIGDA188S

Eridrus• 8 years ago

#3 provides little comfort, given we're not showing any signs of reducing it and rates will likely rise due to, e.g. #2.

#1 doesn't seem like a compelling argument, there were probably far better investment opportunities than +2% ROI, so this was likely still a subsidy, even if there were nominal gains. Not that we shouldn't have done it, but that argument isn't convincing to me.

sonnyblarney3• 8 years ago

1) yes, but was TARP worth the governments risk? Given the riskiness of the debt, perhaps the government should have taken a lot more profit. A dime less in profit given the massive risk profile is de-facto a subsidy for the bank.

2) The 'big whale' you didn't mention is the trillion dollars in crap mortgages that are sitting on the Fed's balance sheet at face value. That more than doubled the Fed's assets, and those assets were way overvalued ... basically making the USD backed by crap. Which is a 'cost' to anyone using USD, esp. those issuing debt in USD, like the Government, i.e. taxpayer.

So while it's fine and good some of the bailouts were above board, there's too much of it that wasn't.

The government should have eaten all those banks, turfed the execs, and the sold them later for a massive profit a few years later basically wiping out most shareholder value and taking the profit into public coffers. That would actually be closer to capitalism than the bailout program.

Gustomaximus• 8 years ago

To the points;

2) Rates are on the rise, though its only fair if its also recognised the absolute level is historically low. And most likely these rates have been a significant variable creating share market and property asset bubble many markets and sectors are in right now. And this bubble has reasonable odds of creating another serious debt problem. Time will tell.

3) Repayments are at historic levels relative to the economy. This doesn't make it OK IMOP as the total load is dangerous in that what happens if interest rates rise? And I'm sure here many people will believe 'US controls the rates' but then this comes with additional flow on problems including but not limited to; 1) Monetary policy is now weakened as one of the more influential economic management tools for future use 2) Risk is through the roof should the appetite for US treasuries drop 3) The cost of servicing and repaying this is getting dumped on future generations, which will limit future opportunity of the economy.

And to be clear, I'm not proclaiming US doom. The US has an amazingly strong and diverse economy. But to focus points that post-2008 has not changed the playing field, and not recognise the high risk game the US are playing with their economy seems unfair.

Alex3917• 8 years ago

earning 15.3B in profit in the process

As compared with the trillion dollars worth of cheap real estate the public would have gotten had the banks been forced to liquidate all their holdings at the same time at massive losses.

pishpash5• 8 years ago

$15.3B is, what, 2.19% ROI? Do you know what else could have been done with an investment of $700B in government outlay in the same period?

The Fed funds rate is being raised on the backs of long-term investors who are forced to suffer interest-rate risk, bar the ones who got out in time of course with sufficient inside information -- guess who those are. This is just the flip side of the Fed funds rate being kept low on the backs of short-term investors in prior years. If you were in short-term investment until recently and began investing as the economy got better -- all very rational, risk-averse behavior -- or were just beginning to accumulate savings, you just got screwed twice. You'll get screwed a third time when the next financial crisis hits. We're all literally still paying for the banks' last mistakes, and will continue to do so for many years to come.

And yeah, your chart [2] conveniently ends at 2017-01-01 just after the time when interest rates troughed. This is also with the backdrop of a relatively strong GDP and not considering the increasing fiscal load being shunted to the state and local levels. The fiscal situation is not good and the only thing propping it up is dollar seigniorage, which, let's be honest, is necessarily going to end at the worst moment when you most need it.

dageshi2• 8 years ago

I wonder how many of those TARP assets were bought either directly or indirectly via the FED via QE?

You would also wonder, why not apply this government intervention to all other industries and businesses that are in trouble? Why does Banking get bailed out and others don't?

sumedh• 8 years ago

You forgot the most important point, Moral Hazard.

Everyone knows that the govt will bail them out during the next crisis so no need to check the reckless behaviour.

Capitalism for profits, Socialism for losses.

drawkbox3• 8 years ago

Naked short selling [1] and short and distort [2][3] were also a big part of the pump and dump then the crash, they nearly broke the entire market.

During the takeover of The Bear Stearns Companies by J.P. Morgan Chase in March 2008, reports swirled that short sellers were spreading rumors to drive down Bear Stearns' share price. Democratic Senator Christopher Dodd felt this was more than rumors and said, "This is about collusion." Chase was victimized by a similar "short and distort" scheme six years earlier when rumors arose about its purported relationship with Enron.

Naked short selling rules went into effect Thursday, Sept. 18, 2008 three days after the Sept. 15, 2008 Great Recession cliff that dropped Lehman and kicked it off [3]. Much cheaper to buy value and extract it when it is cheaper from a crash, the worst kind of players in the market extracted the value from the value creators.

Lots of the games played then are back with hedge funds creating movement to skim, short and distort and in some cases try to shakeup companies [3][4]. Amazon, Tesla, Apple, and many more are getting these attacks currently, we aren't ready for another big game, they might truly break public markets next time.

[1] https://www.sec.gov/news/press/2008/2008-204.htm

[2] https://en.wikipedia.org/wiki/Short_and_distort

[3] https://www.sec.gov/news/press-release/2018-190

[4] https://corpgov.law.harvard.edu/2017/11/27/short-activism-th...

cm2187• 8 years ago

Lehman was insolvant, short sellers didn't create the crash nor the recession. 2008 isn't the story of a malicious rumor that went wrong.

icelancer6• 8 years ago

This post reads like Elon Musk trying to justify why he hates short sellers.

hueving3• 8 years ago

Care to explain how historically low interest is bad for governments in debt? Because that is completely the opposite of how it actually works for lenders (high interest destroys them).

icelancer6• 8 years ago

His point is that we are at risk of high interest rates causing exactly that, and we are getting used to low interest as if it is normal while piling up more and more debt.

yuhong2• 8 years ago

The entire economy has been debt-based since at least the 1970s.

pas7• 8 years ago

Or even sooner. Money is the story of wealth, but the real working and growing economy was almost always about debt. The moment someone invented writing someone wrote a letter of credit. Kings used it, and countries got built on next year's harvests, and of course went bankrupt when that harvest turned out bad.

perfunctory• 8 years ago

no room for manoeuvre left

no room for manoeuvre within the current system. So we'll have to change the system. Unfortunately, I have not yet seen dissent proposals of what the new system should look like (I don't consider crypto a feasible alternative). Nevertheless, I am optimistic.

hypershit• 8 years ago

Good advertisement for the banking industry

BooneJS• 8 years ago

JP Morgan _still_ hasn't provided clean drinking water[0] to New Yorkers yet, so it's simply karma.

[0] https://en.wikipedia.org/wiki/The_Manhattan_Company

mrhappyunhappy2• 8 years ago

“Severe punishment “ constitutes expansion ban and fees. Great! Break the law, no jail for those people. It’s clear that as long as you are a banker you can do whatever the hell you want.

kevmo• 8 years ago

Exactly. Until bad behavior actually destroys profitability or sends people to jail, the banks are free to continue their abuse of the American citizenry.

pas7• 8 years ago

Petition Congress for more proactive financial regulation agencies, otherwise they won't be able to jail bankers much.

Everything that matters was by the book. (The risk offloading.) The DoJ managed to get DPAs worth billions for stuff that wouldn't have landed anyone in jail anyway.

sonnyblarney3• 8 years ago

Why are there only spoken deals, and why is a major thing like this not public.

That has to change. Investors have a right, Americans have a right.

jayd162• 8 years ago

I assume it was private because it would hurt JP Morgan's stock price if it was made public. You could say investors have a right to know but my guess is JPMorgan wanted to keep it private.

jmnicolas• 8 years ago

A French economist, I think it's Charles Gave, said something like "bankruptcy is to finance what hell is to Catholics : if there was no hell they wouldn't behave well".

U.S. Secretly Halted JPMorgan’s Growth for Years

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