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The board of JPMorgan Chase has been quiet as the volume of enforcement action against the bank has approached shocking levels. We discussed recently what, if anything, it ought to do beyond sitting back and letting the historic settlement talks run its course.

It's doubtful at this point that the directors will do anything radical. CEO Jamie Dimon, after all, seems to be doing all he can to deal with the majority of the bank's woes with one massive settlement.

But people are starting to grumble just a bit about the fact that all this enforcement liability cropped up on his watch, wondering if there are appropriate consequences that the board should mete out. One pundit has gone so far as to call for Dimon's job.

A more entertaining look at the issue comes from Breakingviews, which published a mock memo from the bank's lead independent director to the two newest members of the board. "We need to talk about Jamie Dimon. The independent directors have periodically discussed whether our chairman and chief executive, effective as he has been over the years, is in danger of becoming a liability."

The memo goes on to recount the issues, noting that some of the enforcement liability the bank faces stems from Wachovia and Bear Stearns. It also raises an old issue: whether Dimon should be stripped of his chairmanship, an idea that shareholders soundly rejected earlier this year.

Performance can't be ignored. "The big picture suggests Jamie has done a far better job than his U.S. bank CEO peers. Unlike Bank of America's Ken Lewis, he didn't fritter cash away on deals that soon backfired. He has never lost the support of his lieutenants, as Phil Purcell did at Morgan Stanley eight years ago. Crucially, he got us out of risky businesses before the 2008 crisis and bulked up the balance sheet. JPMorgan never posted a quarterly loss and has delivered some of the best results in the industry. Even after our legal hits, we still surpassed a 10 percent return on equity in each of the last three years."

The memo ends up endorsing Dimon as both CEO and chairman.

Indeed, in the real world, it's hard to see Dimon losing his grip. As long as earnings remain robust, he'll be the guy in charge. But we may hear a lot of anger voiced at the next annual meeting. The chairmanship question might well be revived.

Read more about: Jamie Dimon, CEO
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Today's Top News

1. More regulatory angst over physical commodities and banks

By Jim Kim

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2. Big winner from the crisis: Wells Fargo

Should Goldman Sachs stay in physical commodities?

Once the controversy really got hot, JPMorgan wasted no time in announcing that it would exit the business of physically storing metals commodities. The issue is alive for other banks, notably Goldman Sachs, which has taken its lumps over its controversial Metro warehousing facility in Detroit.

Reuters notes that regulators have some big decisions to make. First, the Federal Reserve must decide whether former investment banks Goldman Sachs and Morgan Stanley will "be allowed to continue owning and operating physical assets like oil pipelines and metal warehouses." Their right to own such facilities was granted via a 5-year grace period following their conversion to bank holding companies at the height of the financial crisis. That exemption recently expired.

The Fed is also expected soon to release the results of an internal review of a 2003 move to allow commercial banks to trade in physical commodities.

In addition, the Senate will hold another hearing on these issues soon.

Ahead of all this, Sifma has released a ringing endorsement of the view that banks should be able to operate in these areas. The report was authored by a team led by Daniel Yergin, a known authority in energy. The report "warned that without the ability to trade in the real raw materials themselves, banks would likely either stop providing financial services to certain areas or industries, or be forced to raise costs."

For more:
- here's the article

Read more about: commodities, banks
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By Jim Kim

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3. Star witness on the stand in Bank of America trial

The knee-jerk conclusion in the few years following the financial crisis was that JPMorgan Chase was the big winner, emerging as the bank that benefitted the most. But recent events have shown just how premature that conclusion was. We've suggested that big winner in truth was Wells Fargo. And The Economist agrees. It notes that the bank headed into the crisis as one that served about half the consumer markets in the country; it emerged as a true national bank with a powerful franchise in mortgages.

The key to its success was savvy dealmaking, the ones that it didn't pursue as well as the ones that it did.

"In August 2008 it decided not to buy Countrywide, which had been the country's largest mortgage underwriter and, as Bank of America would discover, a sinkhole for bad loans and litigation. Two months later, as panic consumed the markets, it gazumped Citigroup to acquire Wachovia, which had been assembled over decades of costly and disruptive mergers. It may have been the best bank acquisition ever. In a single move, Wells doubled its branch count and added the eastern half of the country. As John Stumpf, the chief executive, likes to point out, a Wells branch or ATM is now within two miles of half of America's homes and half of its firms."

The bank was emerged as the dominant player in the residential mortgage market, but you have to wonder how it will respond to some dangerous headwinds, notably rising interest rates. The bank now is working hard to diversify its revenue stream, a push that will involves expanding in mid-market investment banking.

For more:
- here's the article

Read more about: Wells Fargo, mortgages
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By Jim Kim

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4. JPMorgan settlement talks intensify

Is Edward O'Donnell the next Sherry Hunt? Recall that the latter filed a False Claims Act against her employer, Citigroup, and ended up with $31 million windfall.

O'Donnell may have a tougher road to travel before he winds up with a massive paycheck. He is now embroiled in an on-going trial in New York, one pitting federal prosecutors against Bank of America over a Countrywide program that has come to be known as Hustle. The high Speed Swim Lane, or HSSL, was designed to produce more prime loans, as the subprime movement seemed to be fizzling. The HSSL loans, however, weren't much better apparently, as they caused Fannie and Freddie to suffer a gross loss of $848.2 million and a net loss of $131.2 million on loans that were materially defective, according to the prosecution, as noted by Reuters.

O'Donnell was an executive at Countrywide at the time and spoke out against the HSSL loans. He claims he was then marginalized. He filed suit under seal in February 2012 under the False Claims Act.

For him to cash in, the government will have to win. So he has a lot on the line personally as the trial continues. He'll be on the stand for quite a while as the key witness. It will be interesting to see how Bank of America lawyers try to undermine his credibility.

Currently, he works as an executive at Fannie Mae, which some might find ironic.

For more:
- here's the article

Read more about: Bank of America, Whistle Blower
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By Jim Kim

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5. JPMorgan Chase executives spared personal charges

The fact that JPMorgan Chase CEO Jamie Dimon and U.S. Attorney General Eric Holder are personally negotiating a sweeping settlement means a lot. Obviously, staff has come to some broad agreements, leaving the final, determinative details to the heavyweights. And they don't get much heavier than Dimon and Holder.

So at this point, a deal would appear to be on the way. Both have a lot on the line, to be sure. Each faces the possibility that the world will look back on their efforts with disdain. We love to pronounce winners and losers after all, and each will be sure to spin the deal in a way that suggests the other didn't each his lunch.

All told, you have to think that this is a big win for the bank. The fact that it can end so much enforcement action with one fell swoop says a lot, though some on-going actions will likely survive. For the moment, it's unclear whether the high-profile action of the Eastern District of California will survive. At least one probe out of the Southern District of New York will remain active.

But most of the most consequential cases will be settled quickly, allowing the bank to move on.

It's hard to read the tea leaves, but it would appear that Dimon is not negotiating whether to admit to wrongdoing. That appears to have been resolved. My sense is that the bank will admit that it had oversight and compliance lapses.

The main issue, according to DealBook anyway, is the size of the settlement. It'll be huge no matter what.

For more:
- here's the article

Read more about: settlement, Enforcement Action
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By Jim Kim

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