JPMorgan's Dimon meets with U.S. Attorney General Holder, JPM director Jackson offers his apologies

Reynolds Holding and Breakingviews editors discuss the bank's talks to settle state and federal mortgage probes for as much as $11 billion and what that could mean for CEO Jamie Dimon. JPMorgan chief in 'constructive' talks on settlement A meeting between JPMorgan Chase & Co chief executive Jamie Dimon and U.S. attorney general Eric Holder at the Department of Justice in Washington on Thursday failed to produce a final deal on the settlement of all outstanding mortgage probes for $11 billion but people familiar with the situation described the talks as "constructive". ======================================================================= UPDATE 4-JPMorgan's Dimon meets with U.S. Attorney General Holder Thu, Sep 26 19:29 PM EDT By David Henry and David Ingram Sept 26 (Reuters) - JPMorgan Chase & Co CEO Jamie Dimon met with U.S. Attorney General Eric Holder on Thursday, seeking to make sure a possible $11 billion settlement will end the bank's pain from mortgage-securities probes, a source said. The bank is close to settling many of the probes into how it sold mortgage bonds before the financial crisis, but Dimon fears that as soon as this deal is worked out other investigations will emerge, the person familiar with the matter said. It is unusual for a CEO of a company to meet with the head of the U.S. Justice Department. But the bank is seeking to tamp down its legal problems as it fends off a spate of probes covering everything from possibly illegal nepotism in China to whether it hid losses from its disastrous "London whale" trades. On the mortgage front, the Department of Justice in California, New Jersey and Philadelphia has been looking into mortgages that the bank packaged into bonds before the financial crisis. Meanwhile, government-owned home finance giants Fannie Mae and Freddie Mac have been pressuring JPMorgan to buy back mortgage bonds that they said the bank should not have sold them. Those claims and the investigation in California would be the two biggest pieces of any deal, another source said. After the meeting at the U.S. Justice Department, which lasted about an hour, Holder told reporters that he had met with representatives of JPMorgan but did not mention Dimon by name. He declined to give details of the talks. Speaking at a news conference on an unrelated topic, the attorney general also said the Justice Department plans to make announcements about financial cases in the coming weeks and months. A source familiar with the matter said a JPMorgan mortgage deal could come within days. JPMorgan has already paid billions of dollars this year to resolve probes into areas including power market manipulation and failing to supervise employees that lost $6 billion from the London whale trades. Many investors see the heat on the bank as evidence of Dimon's dysfunctional relationship with regulators. A member of JPMorgan's board of directors said on Thursday at a conference in Chicago that the company is determined to make amends and improve its reputation. "We've got these things that we actually are guilty of and we've got to fix them," said Labon Jackson, the head of the audit committee on JPMorgan's board of directors. "It's embarrassing for the board." The bank avoided the worst losses in the financial crisis but has been under intense scrutiny since May 2012, when it said it was losing money on derivatives bets that became known as the "London Whale" trades. UNUSUAL BUT NOT UNPRECEDENTED JPMorgan's settlement talks heated up this week following a threat by the Justice Department to file a lawsuit over a mortgage probe being led by federal authorities in California. Legal sources said high-level meetings between corporate executives and the U.S. attorney general are unusual but not unprecedented, especially as big investigations move toward resolution. These conversations are difficult for a U.S. Attorney General, because he or she often does not want to be seen internally as caving to pressure from people or companies being prosecuted, said a former senior employee at the Justice Department. The meeting between Dimon and Holder, the highest-ranking U.S. law enforcement official, marks another step in the nation's attempts to sort out responsibility for the financial crisis that hit five years ago. The two men were backed in the meeting by top advisors. Dimon brought with him the bank's general counsel, Steve Cutler, and outside counsel Rodgin Cohen, a partner with Sullivan & Cromwell, according to a source familiar with the matter. Joining Holder was Deputy Attorney General James Cole and Associate Attorney General Tony West, one of the sources said. Negotiations this week have involved JPMorgan paying as much as $7 billion in cash and $4 billion in consumer relief to settle several investigations - a hefty sum, but representing little more than half of the bank's 2012 profit of $21 billion. A settlement in the $11 billion range would likely include claims from the regulator of Fannie Mae and Freddie Mac, which has sought some $6 billion from the bank over risky mortgage securities sold to the government-sponsored entities, according to two people familiar with the matter. The New York Attorney General's office has been participating in those talks because it is part of a working group formed by President Barack Obama in January 2012 to investigate misconduct in mortgage securities that contributed to the financial crisis. The talks have been described as "fluid" and filled with uncertainties over exactly which claims against the bank would be resolved. JPMorgan's litigation costs totaled $17.3 billion over the last three calendar years, according to the company's annual report. The cases that prosecutors are working on include probes of the mortgage businesses of Bear Stearns and Washington Mutual, two failing banks that JPMorgan bought during the financial crisis. New York Attorney General Eric Schneiderman also sued the bank last October over mortgage-backed securities packaged and sold by Bear Stearns. It was not clear if JPMorgan would be able to include the New York state lawsuit in the settlement being discussed. ======================= On stage in Chicago, JPM director Jackson offers his apologies Thu, Sep 26 15:58 PM EDT By Ross Kerber CHICAGO Sept 26 (Reuters) - The head of JPMorgan Chase & Co's audit committee acknowledged on Thursday that the bank had made mistakes and said it has tried to learn from them. "We've got these things that we actually are guilty of and we've got to fix them," said Laban Jackson, the head of the audit committee of JPMorgan's board of directors. "It's embarrassing for the board," he added. Jackson spoke at a conference at a downtown Chicago hotel on Thursday. The remarks could underscore the bank's eagerness to resolve the raft of regulatory investigations it now faces. Earlier on Thursday, JPMorgan Chief Executive Jamie Dimon met with U.S. Attorney General Eric Holder in Washington to discuss a settlement to end investigations into its sales of shoddy mortgage securities leading up to the financial crisis. In Chicago, Jackson spoke publicly with Anne Sheehan, chair of the Council of Institutional Investors, which sponsored the event. Jackson did not discuss in detail the bank's settlement talks with regulators. But he did offer a picture of some board decision making and vowed that it would try to become more open with investors. When Sheehan, as moderator, suggested that many directors would not share the same goal, Jackson replied, "That's got to change, and you guys have to drive it." Asked what he learned from JPMorgan's troubles, Jackson said that while few boards or managers could stop malfeasance, JPMorgan made sure its response to problems like the so-called "London whale" trading losses were correct, such as by bringing in law firms to investigate its actions. Jackson quoted JPMorgan's top director, former Exxon Mobil CEO Lee Raymond, as saying: "our job is to get the respect back in the market." Jackson received a polite reception from attendees at the conference, which included hundreds of officials from state pension funds, endowments and other institutions. Several said, however, they wished the directors had taken a harder line. "I think he was very light on the board's self-evaluation," said Dieter Waizenegger, executive director of CtW Investment Group, an adviser to union pension funds. CtW previously had opposed Jackson's re-election to the board. Jackson noted that after problems emerged, JPMorgan had clawed back millions of dollars from executives, demoted some and fired others to send a strong message the bank's rules and culture had to be respected. "I don't know what else we could have done because we're not allowed to shoot people," Jackson said. "That's what happened. I'm sorry to all you shareholders." ==============================

U.S. tweaks Fannie Mae, Freddie Mac bailout terms, requires all profits

Fri, Aug 17 10:31 AM EDT WASHINGTON (Reuters) - The Treasury said on Friday it is changing the way Fannie Mae and Freddie Mac will repay taxpayers in a move the Obama administration said would accelerate the winding down of the government-owned mortgage financiers. The finance companies, which buy mortgages from lenders and repackage them as securities for investors, will now be required to hand over all their profits to the U.S. Treasury instead of the 10 percent dividend repayment required under the terms of their government bailout. The change comes as the Treasury's unlimited support for the companies gets set to expire at the end of the year. Fannie Mae and Freddie Mac have drawn down a total of $188 billion in taxpayer funds to stay afloat since they were taken over by the government in 2008. Over the past three years, the companies have had to repeatedly tap the Treasury lifeline in order to make the required quarterly repayments -- a situation that had Fannie Mae and Freddie Mac taking government funds to repay the government. "The market's worry is that Fannie and Freddie will exhaust this Treasury capital and default on bond payments," the Washington Research Group said in a note to clients. "Just the fear of this could drive up their borrowing costs, which would require them to seek government capital more quickly," it said. With the housing market showing signs of improvement and Fannie Mae and Freddie Mac reducing their portfolios of loans with poor credit quality, the government-owned companies posted strong profits in the second quarter of this year. The Treasury said this change would ensure that "every dollar of earnings that Fannie Mae and Freddie Mac generate will be used to benefit taxpayers for their investment in those firms." The companies will also be required to reduce their investment portfolios at an annual rate of 15 percent instead of the previous 10 percent. That will put them on track to cut their portfolios to the $250 billion target in 2018, four years earlier than previously scheduled, the Treasury said. (Reporting by Rachelle Younglai; Editing by Chizu Nomiyama) =========== Frantastic Treasury's Frannie fix puts Congress on the spot 17 August 2012 | By Agnes T. Crane, Daniel Indiviglio Print Email Save . The U.S. Treasury has put Congress on the spot over the future of housing finance. On Friday Team Geithner unveiled some bold moves to speed up winding down Fannie Mae and Freddie Mac. Now it’s up to the nation’s lawmakers to figure out what will replace the troublesome twins. Treasury is ending the onerous 10 percent annual dividend the two mortgage agencies have to pay on the $188 billion they borrowed from taxpayers. That payout had created a bizarre feedback loop which forced them, until recently, to borrow even more money from the Treasury to pay their annual tithe. Instead, the companies will hand over all their profit to Uncle Sam. At present, that means extra cash for the nation’s coffers: both earned more than what they owed for the dividend in the second quarter but kept the extra. The new agreement also removes the temptation for the two lenders to use any unreturned profit to grow their business or overpay their staff. Treasury has also ordered the agencies to shrink their $1.3 trillion investment portfolios by 15 percent annually, up from 10 percent. That means they should hit the $250 billion target by 2018, four years early. Freddie already slimmed its portfolio at the new rate over the past year. This still leaves the dilemma of how to reform the dysfunctional U.S. housing finance system. The Obama administration put forth some suggestions over a year ago, but lawmakers have done little since. Even the most crucial of questions remains unanswered: should the government guarantee home loans at all? It must be tempting to do nothing: Fannie’s and Freddie’s earnings go straight into the general fund for a cash-strapped Congress to spend. But just letting the agencies shrink is not an answer. They account for more than 60 percent of all home loans made in the past few years. Banks do not have the balance-sheet capacity to fill the gap and investors prefer buying federally guaranteed mortgages. Saying goodbye to potential revenue is never easy. It is especially difficult in the middle of a budget war. But keeping the Franken-Frannie monster alive is no solution. ================ U.S. sues Wells Fargo in mortgage fraud case Tue, Oct 09 19:31 PM EDT By Rick Rothacker and Aruna Viswanatha (Reuters) - The U.S. government filed a civil mortgage fraud lawsuit on Tuesday against Wells Fargo & Co, the latest legal volley against big banks for their lending during the housing boom. The complaint, brought by the U.S. Attorney in Manhattan, seeks damages and civil penalties from Wells Fargo for more than 10 years of alleged misconduct related to government-insured Federal Housing Administration loans. The lawsuit alleges the FHA paid hundreds of millions of dollars on insurance claims on thousands of defaulted mortgages as a result of false certifications by Wells Fargo, the fourth-biggest U.S. bank as measured by assets.

"As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," said Manhattan U.S. Attorney Preet Bharara.

Wells, the largest U.S. mortgage lender, denied the allegations and said in a statement it believes it acted in good faith and in compliance with FHA and U.S. Department of Housing and Urban Development rules. The bank said many of the allegations have been previously addressed with HUD and added that its FHA delinquency rates have been as low as half the industry average. In a regulatory filing in August, the bank said it was being investigated for possible violations of laws and regulations relating to mortgage origination practices, including FHA loans. Wells said it will vigorously defend itself against the suit. Bharara's office has brought similar cases in the past few years, including one against Citigroup Inc unit CitiMortgage Inc, which settled the case for $158.3 million in February, and against Deutsche Bank, which paid $202.3 million in May to resolve its case. The U.S. Attorney's office in Brooklyn brought the biggest such case, against Bank of America Corp's Countrywide unit, which agreed in February to pay $1 billion to resolve the allegations. The Wells Fargo case is brought under the False Claims Act, which provides penalties for fraud against the government, and under the Financial Institutions Reform, Recovery, and Enforcement Act, or FIRREA for short, a little-used statute that has grown in popularity in the past year. The law requires a lower burden of proof than criminal charges, has a longer statute of limitations than other financial laws and potentially could bring big fines. A civil fraud unit that Bharara created in March 2010 filed its first lawsuit under FIRREA in December of that year. DAMAGES AND PENALTIES At issue In Tuesday's suit are loans Wells Fargo made through a program that allows banks to originate, underwrite and certify mortgages for FHA insurance, according to the complaint. Under the so-called Direct Endorsement Lender program, neither the FHA nor HUD reviews a loan before it is approved for FHA insurance, but lenders are supposed to follow program rules. Between May 2001 and October 2005, according to the complaint, Wells certified more than 100,000 loans for FHA insurance, even though the bank knew its underwriters had failed to verify information that was directly related to the borrower's ability to make payments. "The extreme poor quality of Wells Fargo's loans was a function of management's singular focus on increasing the volume of FHA originations (and the bank's profits), rather than the quality of the loans being originated," the complaint said. The bank also failed to properly train its staff, hired temporary workers and paid improper bonuses to its underwriters to encourage them to approve as many loans as possible, the complaint said. During a 7-month stretch in 2002, at least 42 percent of the bank's FHA loans failed to actual qualify for the insurance they were submitted for, even though the bank's internal benchmark for such violations was set at 5 percent. Wells also kept its defective loans secret from HUD, the complaint said. From January 2002 to December 2010, the bank internally identified more than 6,000 "materially deficient" loans, including 3,000 that had defaulted in the first six months, but did not comply with its self-reporting obligations, the complaint said. Prior to October 2005, the bank did not self-report a single bad loan, and the inadequate reporting continued even after a HUD inquiry that year, the suit states. All told, from 2002 through 2010 the bank self-reported only 238 loans, according to the complaint. Some of the mortgages Wells Fargo suspected of fraud but declined to report to HUD include loans it separately reported as suspicious activity to the U.S. Treasury Department, according to the suit. The complaint seeks treble damages and penalties for hundreds of millions of dollars in insurance claims already paid to Wells Fargo, as well as penalties on claims HUD may pay in the future. Citi, in its settlement, paid $158 million to resolve allegations that a "substantial percentage" of around $200 million in insurance claims failed to meet FHA requirements. The Wells Fargo complaint also includes specific allegations that the lender failed to report another $190 million in loans it should have flagged as potentially problematic to HUD, which potentially adds to any eventual payout from the bank. The lawsuit adds to the growing number of civil cases the government has filed targeting conduct that allegedly contributed to the financial crisis. The Justice Department has indicted few individuals and institutions on criminal charges for roles in the collapse, and officials have said prosecutors determined much of the conduct amounted to greed but not crimes. A joint federal-state task force set up earlier this year to continue to probe conduct tied to the 2007-2009 crisis has also acknowledged the bulk of its inquiries are under civil law. (Reporting by Rick Rothacker in Charlotte, N.C. and Aruna Viswanatha in Washington; Editing by Matthew Lewis and Tim Dobbyn) =============== Mortgage boom leads to profit surge for JPMorgan, Wells Fri, Oct 12 17:41 PM EDT 1 of 2 By David Henry and Rick Rothacker (Reuters) - Two of the nation's biggest banks, Wells Fargo & Co and J.P. Morgan Chase & Co, made record profits over the last three months from a sharp rise in mortgage lending, though performance stumbles elsewhere left investors worried about how long those profits can last. Both banks reported double-digit increases in third-quarter earnings on Friday, as record-low interest rates and an uptick in the housing market drove a boom in mortgages. But analysts said those record earnings might not be sustainable, as each bank posted declining margins that suggest they may have a harder time earning as much in the future. J.P. Morgan shares closed the day down 1.1 percent at $41.62, while Wells Fargo declined 2.6 percent to $34.25. Both underperformed the broader market, which was essentially flat. The issue is the "net interest margin," or the spread between what the banks earn from loans and what they pay out on deposits. That margin contracted in both cases. "You have a battle between net interest margin and mortgage banking," said Marty Mosby, an analyst at Guggenheim Securities, referring to the tension between profit-drivers now and potential future results. Barclays Capital said it was the 17th time in the last 18 quarters that the bank beat Wall Street's forecasts. Net interest margin contracted to 2.43 percent in the quarter, 4 basis points less than the prior quarter and 23 basis points lower than a year earlier. Wells, Warren Buffett's favorite bank, stumbled on the net interest margin. It fell 25 basis points to 3.66 percent in the third quarter. That was a sharper drop than expected, though bank executives insisted they were unconcerned and that investors should focus on overall profitability. Keefe, Bruyette & Woods analyst Frederick Cannon, in a research report for clients, said the strength in mortgages was good but the weakness in the interest margin was more important. MORTGAGES ON THE MOVE The mortgage market dragged on banks during the worst of the financial crisis but has become a bright spot of late. After the Federal Reserve said in September it would buy huge quantities of mortgage bonds every month for the foreseeable future, rates fell sharply and loan applications soared. Wells Fargo, by far the largest mortgage lender in the country - three times the size of its closest peer - made $139 billion in mortgages in the three months ending in September, up $50 billion from a year earlier. There is a limit to that growth, though, warned J.P. Morgan Chief Executive Jamie Dimon. "We don't expect to count on high margins and mortgage origination forever," Dimon said on Friday. The refinancing trend, he added, will continue "next quarter, maybe for a couple of quarters after that, but it won't last much longer." SMALLER WHALES Besides the good news about the housing market, J.P. Morgan also reported that losses are shrinking rapidly from the bad trades engineered by the so-called London Whale, which cost the bank almost $6 billion in the first half of the year. The losses cast a harsh light on Dimon, the chief executive viewed by some as a potential leading candidate for U.S. Treasury secretary in a second Obama administration. He has apologized repeatedly, and at length, for failing to catch the problem before it grew so big. The nation's largest bank by assets posted net income of $5.71 billion, or $1.40 a share, up 34 percent from a profit of $4.26 billion, or $1.02 a share, a year earlier. Analysts on average had expected a profit of $1.24 a share, according to surveys by Thomson Reuters I/B/E/S. Barclays Capital said it was the 17th time in the last 18 quarters that the bank beat Wall Street's forecasts. Net interest margin contracted to 2.43 percent in the quarter, 4 basis points less than the prior quarter and 23 basis points lower than a year earlier. Wells Fargo, the nation's fourth-largest bank by deposits, earned $4.9 billion in the quarter, 22 percent more than a year earlier. Per-share earnings of 88 cents just beat the average Wall Street forecast of 87 cents, although revenue missed estimates by some $270 million. Wells, Warren Buffett's favorite bank, stumbled on the net interest margin. It fell 25 basis points to 3.66 percent in the third quarter. That was a sharper drop than expected, though bank executives insisted they were unconcerned and that investors should focus on overall profitability. Keefe, Bruyette & Woods analyst Frederick Cannon, in a research report for clients, said the strength in mortgages was good but the weakness in the interest margin was more important. (Reporting by David Henry in New York and Rick Rothacker in Charlotte, N.C.; additional reporting by Dan Wilchins and Jed Horowitz in New York; writing by Ben Berkowitz; editing by Matthew Lewis) ===============