Counterparties: Masters of overcharging

May 3, 2013

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JP Morgan may be going back to banking basics. Instead of losing billions in arcane, illiquid credit instruments, the bank’s latest scandal is a classic: overcharging unwitting customers.

Jessica Silver-Greenberg and Ben Protess report that JP Morgan is in some very hot water with the Federal Energy Regulatory Commission (FERC). According to an agency memo, the bank turned “money-losing power plants into powerful profit centers”.

Under other circumstances, that’d be just another win for JP Morgan’s booming commodities division. The problem is that JP Morgan’s success came through allegedly duping California and Michigan state officials into overpaying for energy by $83 million. These same allegations were included in Joshua Rosner’s comprehensive review of the bank’s regulatory lapses published in March.

When confronted by regulators, Blythe Masters, the bank’s head of commodities, made “false and misleading statements”,  FERC says. The traders working for Masters “planned and executed a systematic cover-up” of the trades,” and an email from Masters instructed an internal document to be rewritten. Importantly, the agency plans to hold both JP Morgan and individuals at the bank liable for any infractions.

Additionally, the WSJ, relying on a separate confidential regulatory document, reports that the usually tame-to-a-fault Office of the Comptroller of the Currency is planning to punish the bank for its consumer debt collection practices.

The American Banker surveys the damage under the heading “Jamie in the hot seat”. Dimon has continued to revamp his management team — hiring a new new vice chairman yesterday to replace an outgoing ally. With at least eight federal agencies investigating the bank, JP Morgan may soon have additional management slots to fill, possibly including Dimon’s role as chairman. – Ben Walsh

On to today’s links:

How textile kings weave a hold on Bangladesh – Reuters

Twitter hires Morgan Stanley banker, may or may not be considering an IPO – WSJ

REITs with no employees are probably not great at looking out for investors – Bloomberg

EU Mess
European Commission suggests giving countries more time to get their deficits cuts in order – WSJ

A deeper look at the slow jobs recovery – Felix Salmon
Full text of the April jobs report – BLS

Does population growth necessarily lead to higher housing prices? – Paul Krugman

Possibly Useless Data
On a price-per-hour basis, haute cuisine cheaper than a massage – Eatocracy

Good Points
Predicting jobs data is not only hard — it’s also useless – Barry Ritholtz

BNP Paribas CEO satisfied with the bank’s 45% profit drop – CNBC

And, of course, there are many more links at Counterparties.

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