CEO Jamie Dimon told his top executives, “We will get through all of this.”
Associated Press file,
Phone call spurs JPMorgan deal
- Article by: BEN PROTESS and JESSICA SILVER-GREENBERG
- New York Times
- October 20, 2013 - 11:39 PM
At a museum on Fifth Avenue in New York City, in a sparkling reception hall overlooking Central Park, Jamie Dimon convened his top executives and their spouses last month for the Wall Street equivalent of a pep rally.
“I’m proud of the company,” Dimon, the chief executive of JPMorgan Chase, said at the event, held at the Museum of the City of New York, a mansion with a marble staircase and French doors. According to people who attended, Dimon said, “We will get through all of this,” referring to the legal and regulatory woes dogging the nation’s biggest bank.
The next week, Dimon aimed to put one of those woes behind him.
On Sept. 24, four hours before the Justice Department was planning to hold a news conference to announce civil charges against the bank over its sale of troubled mortgage investments, Dimon personally called one of Attorney General Eric Holder’s top lieutenants to reopen settlement talks, people briefed on the talks said. The rare outreach from a Wall Street CEO scuttled the news conference and set in motion weeks of negotiations that have culminated in a tentative $13 billion deal, according to the people briefed on the talks.
An account of the negotiations, based on interviews with these people, pulls back a curtain on the private wrangling to illuminate how the bank and the government managed to negotiate what would be a record deal. It also sheds new light on the hands-on-role that Dimon and Holder played in the talks. And it highlights how Dimon has maintained the support of the bank’s board when other Wall Street chiefs were derailed by the financial crisis.
Much of the deal came down to dollars and cents. Dimon, the people said, signaled during that Sept. 24 call that he was willing to increase JPMorgan’s offer to settle an array of state and federal investigations into the bank’s sale of troubled mortgage securities before the financial crisis. The government, these people said, had already balked at the bank’s two initial offers: $1 billion and $3 billion.
And so that same week, Dimon traveled to the Justice Department in Washington for a meeting with Holder that underscored how expensive the healing process had become. At the meeting, the people briefed on the talks said, Dimon raised the offer to $11 billion, $4 billion of which would serve as relief to struggling homeowners.
But Holder wanted more money to resolve the civil cases, the people briefed on the talks said. And despite the bank’s requests, he refused to provide JPMorgan a so-called nonprosecution agreement that would halt an investigation from prosecutors in California, who were scrutinizing the bank’s mortgage securities. Instead, the people said, he informed Dimon that the Justice Department wanted JPMorgan to plead guilty to a criminal charge in that case, an unusual show of force against a Wall Street bank.
While they were unable to strike a deal that day, Dimon and Holder kept in close touch, talking five times in the last two weeks. Late Friday, on the last of those calls, they finally reached the tentative deal: $13 billion and no promise of dropping the criminal investigation.
The deal, which could still fall apart over issues like how much wrongdoing the bank would admit, would be a record accord for the Justice Department. A single corporation has never paid this much to settle.
The deal might also embolden the Justice Department and set a precedent for the agency’s investigations of Wall Street. Using this case as a template, and relying on a law that extends the legal deadline for filing certain financial fraud cases to 10 years from five, the Justice Department is planning to take action against other big banks suspected of selling troubled mortgage securities.
For JPMorgan, once known as Washington’s favorite bank, the deal would be a stunning reversal of fortune.
Complicating matters for the bank, Dimon is inextricably linked to the settlement. With the government, he assumed the role of chief negotiator. And at the bank, as illustrated at the museum gathering, he remains its chief cheerleader.
He has embraced the dual roles, and the mantle of peacemaker, as the bank faces scrutiny. At least seven federal agencies, several state regulators and two foreign countries are investigating the bank. The campaign includes everything from a $6 billion trading loss in London last year to the hiring of well-connected employees in China.
The mortgage case presented the greatest test. Not only are several state and federal agencies involved, but the cases stem from a politically charged issue at the center of the financial crisis: the mortgage bubble.
When credit flowed freely in the run-up to the crisis, banks routinely bundled subprime and other risky loans into securities that they sold to investors. When homeowners fell into foreclosure and the investments soured, it caused billions of dollars in losses for the investors. In turn, government authorities began to question whether the banks properly warned of the risks.
Banks have countered that the risks were fully disclosed and that the investors, including pension funds and other institutions, were sophisticated entities.
Some defense lawyers also question whether the government is going too far. A $13 billion penalty would be more than half of JPMorgan’s profits last year. And some of the mortgage securities in question are not JPMorgan’s. Rather, the bank inherited the liabilities when it bought Bear Stearns and Washington Mutual in 2008, at the height of the financial crisis.
A JPMorgan spokesman declined to comment.
© 2013 Star Tribune