Wednesday, January 8, 2014

Banks Withstand Penalties with Financial Success, Planning

The Wall Street Journal provides a daily look back on happenings in the financial world. Today it looked back on Jan. 8, 1962, when the SEC attacked Wall Street, accusing the American Stock Exchange of ignoring rules.

History Repeats Itself

The Wall Street Journal’s prediction on January 8, 1962 was that the Securities Exchange Commission findings would most certainly lead to an increase in regulation by the government over the nation’s stock exchange.

It stated there was a lack of self-regulation, that prior warnings failed to curtail questionable behavior and that the government would have to react to protect investors, the public.
In other words, what was present then, is present today: illegal trades, questionable practices, illicit meetings and discussions, consistent bad behavior by traders and businesses, remain today.

Regulators have other ways of improving ethics at banks by holding individuals accountable. But facts in the government’s Madoff situation suggest efforts to hold executives responsible goes only so far.

How Banks Survive

Wells Fargo, the largest home lender was responsible for a fifth of U.S. mortgages in 2013 and profited from lowered rates from the Federal Reserve which aided refinancing. But as rates increased, applications slowed and cut into origination loans.

Nonetheless the bank had a record fourth quarter after cutting expenses.

A bank the size of JP Morgan can absorb a loss of $1.7 billion for its alleged role federal prosecutors found that JP Morgan had for  failing to report Bernard Madoff’s suspicious activities to the authorities.

JP Morgan which was responsible fore survived because of its financial plans:
  1. Wall Street analysts estimate JP Morgan will earn as much as $23 billion in profit this year, more than any other lender.
  2. JP Morgan makes $25 billion in revenue per quarter and has record capital
  3. JP Morgan’s shareholders and clients remain loyal
  4. JP Morgan has steadily set aside reserves over the last few years to finance future legal payouts
  5. JP Morgan said that it might have to set aside an extra $400 million for the Madoff settlement
The action describes how the chief risk officer of JPMorgan’s investment bank – who is still at JP Morgan -- allowed the bank to increase its financial exposure to a Madoff entity in 2007 to $250 million.

The risk officer had spoken with Madoff and approved the increase even though it was clear that Madoff would not answer more probing questions about his firm, according to the Wall Street Journal. 

The risk officer, John Hogan, still works at JPMorgan as chairman of risk.

Bank of America has paid out over $24 billion with more to ahead. Some analysts estimate that the bank has paid at least 10 times the acquisition costs to settle such issues. There are many such cases still pending.

JP Morgan Chase, Bank of America, Wells Fargo, Citibank, Aurora, HSBC, MetLife Bank, PNC, Sovereign, U.S. Bank, Goldman Sachs, Morgan Stanley and SunTrust will be under the microscope of the SEC, investors, clients and in particular homeowners and former homeowners affected by the debt created by the mortgage crisis fiscal irresponsibility. 

If you're trying to understand how the settlements will affect you or if you get paperwork in the mail about settlements from any of the above banks from property you own, or owned, call 407-740-7379 to meet with Eric Lanigan or Roddy Lanigan of Lanigan and Lanigan, P.L., in Winter Park, Florida. 

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