JPMorgan Chase is prepared to pay $11bn to settle federal and state claims in the US that it or its subsidiaries mis-sold mortgage backed securities (MBS). According to the ‘FT’ the total proposed settlement figure comprises of $7bn in cash to government and regulatory bodies, with $4bn earmarked for consumer compensation.
The bank is in discussion with the US Department of Justice (DoJ), the Securities and Exchange Commission (SEC), the US Department of Housing and Urban Development (HUD) and the New York State attorney general, among others, as it seeks a resolution to the issue of mis-sold MBS’.
JP Morgan only recently paid US and UK regulators US$920m to settle the so-called ‘London Whale’ episode which previously sunk its results after alleged rogue trader, Bruno Iksil, lost control of his position in London trading operations.
The move to settle any outstanding issues in the US appears to be a concerted move to put its regulatory problems to bed once and for all. The largest US bank has disclosed more than a dozen probes globally in recent filings, including an investigation from the US DoJ in California that preliminarily concluded that JPMorgan violated securities laws in selling subprime mortgage bonds. In addition, US DoJ lawyers from other areas of the country and state authorities have been investigating JPMorgan's liability for mortgage securities sold by two other companies it acquired during the financial crisis, Bear Stearns and Washington Mutual.
“Now JP Morgan has paid a huge price for peace with the regulators, its next campaign will be inside the firm itself,” commented Andre Spicer, professor of organisational behaviour at Cass Business School, London. “To ensure this doesn't happen again, senior executives need to fight against a creeping culture where bankers saw themselves as the customers they were creating value for. This led to extreme risk taking and deviant behaviour on a massive scale.
“To break with this self-serving culture, the bank has started to build better risk management and compliance systems, and exit the most dangerous parts of the market. But new risk management technology will only get you so far. To make the bank sustainable, a deeper culture of responsibility, integrity and trust must be built. This will face stiff opposition from many in the investment bank.
As Cass’ Spicer concluded winning the cultural war will take patience and determination, as will repairing the bank’s battered reputation.