JPMorgan’s (JPM) reputation was tarnished last year after the bank lost billions of dollars because of its London “whale trade." Now the biggest U.S. bank in terms of assets was hit by another public relations headache.
The Wall Street Journal reports today that the Office of the Comptroller of the Currency (OCC) has downgraded JPMorgan’s management to level 3. (5 is the worst score and 1 is the best). The rating indicates that the bank’s risk management practices “are less than satisfactory” or management and board performance need improvement.
Last week the Senate Subcommittee on Investigations headed by Carl Levin (D-MI) held a hearing on the losing derivative trades from the bank’s London Chief Investment Office. Several JPMorgan executives testified but not CEO Jamie Dimon. The committee also released a scathing 300-page investigative report that found that the bank disregarded its own risk management rules designed to prevent such a disaster, and then hid those losses from the public and regulators.
The report could help the Securities and Exchange Commission pursue a case against the bank for improperly valuing derivatives and underreporting losses, according to the New York Times' DealBook.
And Freddie Mac, the government-sponsored enterprise that creates and sells mortgage-backed securities, is suing more than a dozen global banks, including JPMorgan, for colluding to suppress the Libor Rate. Freddie Mac says the lower interest rate caused losses on the interest rate swaps it used to hedge its risks in the mortgage market.
Finally, JPMorgan itself agreed to settle with the trustee of MF Global’s liquidation. JPMorgan claimed it was owed $546 million as a creditor. That money can now be used for payouts to MF Global investors.
JPMorgan shares have retreated 3.5% in the past week but are still up more than 8% versus a year ago. That's only slightly below the 10.2% gain for the S&P 500. Michael Santoli, senior columnist at Yahoo! Finance, says in the accompanying video that the worst may be over for the big bank.
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