There's a bit of very good news this morning. Last month, JPMorgan Chase coughed up a total of $920 million in fines and penalties to American and UK regulators for inadequate oversight of its traders during the London Whale snafu. Now, late last night, the New York Times reports (below the fold) that Chase is about to reach a settlement with the Commodity Futures Trading Commission in which it will admit the London Whale trades themselves were reckless.
Unlike a settlement last month with the Securities and Exchange Commission, which largely took aim at porous controls and governance practices at the bank, the pact with the Commodity Futures Trading Commission zeros in on the bank’s actual trading practices. The agency, using new authority under the Dodd-Frank Act of 2010, argues that the bank’s trading was so large and voluminous that it violated a law preventing banks from recklessly using a “manipulative device” in the market for credit derivatives, financial contracts that let the bank bet on the health of companies like American Airlines.
According to people close to the talks, Chase is expected to pay a $100 million fine--merely a rounding error for the second-largest bank in the world. More importantly, though, Chase will admit that it acted recklessly on one trading day. The CFTC's order will reference other trades, but Chase will neither admit nor deny wrongdoing on those days.
At first, Chase was unwilling to admit any wrongdoing. It was only the threat of a lawsuit--one which would likely force senior executives to testify under oath--that brought Chase back to the negotiating table. That, and the fact its bargaining position was significantly eroded by the September settlement.
This isn't nearly the end for Chase yet. The Justice Department reportedly wants Chase to admit it misled investors about the risks present in mortgage-backed securities it sold form 2005 to 2007. Chase has offered to pay $7 billion in fines and set aside $1 billion to help struggling homeowners. Plus, two of the people involved in the London Whale trading are up on criminal charges.