The financial giant is also facing civil charges and fines that could cost it $11 billion. JPMorgan is negotiating with the Justice Department over the company's handling of mortgage-backed securities leading up to the housing crisis. Host Scott Simon talks with New York Times columnist Joe Nocera about the significance of the talks.
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SCOTT SIMON, HOST:
This is WEEKEND EDITION from NPR News. I'm Scott Simon. JPMorgan Chase is one of the largest financial institutions in the world, and during the worst of the U.S. financial crisis, it was singled out as an example of a well-managed bank. But not for a while. JPMorgan is now the subject of multiple federal investigations over its handling of mortgage-backed securities leading up to the housing crisis.
It's negotiating with the Justice Department to try to avoid criminal and civil charges that could cost them $11 billion. That's a lot of money even for JPMorgan. Joe Nocera, columnist for the New York Times joins us from New York. Joe, thanks so much for being with us.
JOE NOCERA: Thanks for having me, and yes, $11 billion is real money.
SIMON: Well, what are the feds looking into?
NOCERA: Well, there have been so many investigations it's a little hard to keep track. But the focus of this series of investigations is did they sell lousy mortgages to investors, to Fanny and Freddy, paper that they knew was going to explode? And it's not just JPMorgan. You have to actually feel a little bit sorry for them because some of this is for Washington Mutual mortgages and Bear Stearns mortgages that the JPMorgan - two companies JPMorgan bought largely at the pleading of the government.
SIMON: Yeah, to take them off the hands of the American taxpayers.
NOCERA: That's right. No good deed, etcetera. But plenty wrong themselves.
SIMON: Well, it raises this question. President Obama, among so many others, had singled out JPMorgan Chase as especially well-managed bank. Was the praise of so many people misplaced, or was the bank mendacious?
NOCERA: Well, they sidestepped many of the mistakes other firms made that got them into trouble during the financial crisis. JPMorgan really avoided almost all of that, and they were widely praised for that and they should have been widely praised for that. Following that, however, Goldman had a time when they were in trouble and Bank of America had a time when they were in trouble. And then a year and a half ago, as all this was settling down, JPMorgan made that horrible trade in London that cost it $6 billion, the so-called London Whale trade.
And the result of that was that every regulator in London and every regulator in Washington jumped all over them and began finding all these things wrong, much of which had to do with compliance; having compliance officers, making sure certain proper steps were taken. JPMorgan is now hiring literally thousands of compliance officers that, if they'd had them three or four years ago, they wouldn't be in the sling that they're in right now.
SIMON: Is the Justice Department trying to make the bank an example?
NOCERA: Yes, without question. Even though no one will be indicted or probably even named in the various settlements, $11 billion really is a lot of money, and the regulators are trying to send a message to the banking industry that, you know, having kind of been a little too soft on them earlier, you know, the party's over and they're going to regulate with a fierceness that they hadn't had before.
And that's really a lot of what this $11 billion settlement is about. JPMorgan can certainly afford it. It's two quarters of profit for them, but it's enough money that it inflicts pain and it sends a message.
SIMON: And who might that $11 billion go to?
NOCERA: Well, some of it will go directly to the federal government. All the various regulators will divvy up, assuming it turns out to be $11 billion. The various regulators will divvy up about $7 billion of that, and the $4 billion is supposed to come in the form of consumer relief, which means, you know, lowering interest rates on people with trouble mortgages and, you know, finding ways to help consumers that will allow them to deduct a certain amount and presumably it will eventually add up to $4 billion.
SIMON: When you refer to mortgage relief, is it relief that will nevertheless come too late for a lot of people?
NOCERA: Probably. So much of this has already swept through the system and the answer is we're coming to the end of the foreclosure crisis. People have gotten relief on the margins because of this giant mortgage settlement that they did last year with the attorneys general, and you know, it's certainly possible that JPMorgan's mortgage relief, or whatever it turns out to be, will help, but it will only help on the margins because most of this is really, you know, already happened.
SIMON: Joe Nocera of the New York Times joining us from New York. Joe, thanks so much for being with us.
NOCERA: Thank you, Scott. Transcript provided by NPR, Copyright NPR.