Counterparties: Masters of overcharging
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JP Morgan may be going back to banking basics. Instead of losing billions in arcane, illiquid credit instruments, the bank‚Äôs 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 ‚Äúmoney-losing power plants into powerful profit centers‚ÄĚ.
Under other circumstances, that‚Äôd be just another win for JP Morgan‚Äôs booming commodities division. The problem is that JP Morgan‚Äôs 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‚Äôs comprehensive review of the bank‚Äôs regulatory lapses published in March.
When confronted by regulators, Blythe Masters, the bank‚Äôs head of commodities, made ‚Äúfalse and misleading statements‚ÄĚ, ¬†FERC says. The traders working for Masters ‚Äúplanned and executed a systematic cover-up‚ÄĚ of the trades,‚ÄĚ 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 ‚ÄúJamie in the hot seat‚ÄĚ. 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‚Äôs role as chairman. – Ben Walsh
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