JPMorgan Chase Essay

Introduction J. P. Morgan Chase & Co. is a prominent and successful Fortune 500 company. It is the largest bank in the United States by assets. CEO James Dimon, has lead the J. P. Morgan Chase & Co. through multiple risky events. J. P. Morgan Chase & Co. has been facing multiple fines and settlements due to its failure to abide by its own code of conduct. The company has failed to follow procedures and regulations on numerous occasions. The company is becoming notorious for making unethical decisions and simply not following the guidelines. This year J. P. Morgan Chase & Co. agreed on a thirteen-billion dollar settlement regarding unethical selling of mortgage-backed securities. The selling of these mortgage-backed securities played a role in causing the financial crisis of 2008. An article found on BBC’s website does a good job of explaining this in basic simple terms. Between 2004 and 2006 US interest rates rose from 1% to 5. 35%, triggering a slowdown in the US housing market. Homeowners, many of whom could only barely afford their mortgage payments when interest rates were low, began to default on their mortgages. Default rates on sub-prime loans – high risk loans to clients with poor or no credit histories – rose to record levels. The impact of these defaults were felt across the financial system as many of the mortgages had been bundled up and sold on to banks and investors (http://news. bbc. co. uk/). This report explains and elaborates on J. P. Morgan Chase & Co. ’s role in the financial crisis. It expounds on what the company violated and unethically did to have caused the current settlement negotiation. Using multiple online resources, we gathered information plentiful enough to analyze the company’s practices and determine what steps must be taken to avoid future discrepancies. Through social media we observed how consumers’ feelings towards the company are being impacted by the current tentative settlement regarding the mortgage-backed securities. The stock market was observed and studied throughout the course of J. P. Morgan Chase & Co. ’s negotiations. It is vital to understand how shareholders are being impacted as they are a key role in a company’s success and resources. Using the information gathered this report suggests steps to take in improving not only how J. P. Morgan Chase & Co. is thought of but how the company does business. JPMorgan Violated Both Banking and Securities Laws On January 24, 2012 President Barrack Obama gave his State of the Union speech in which he stated, â€Å"Our working group is focusing on conduct related to the pooling and creation of mortgage backed securities, issues related to conduct that created the crash, not abuses that happened after the crash† (Obama). He aims to create a mortgage crisis unit that will investigate the major banks that took part in unethical practices that lead to the crisis. New York Attorney General Eric Schneiderman will co-chair the unit. The mortgage crisis unit includes officials from the Justice Department, Securities, Exchange Commission and Internal Revenue Service. Obama said in his speech that the unit â€Å"will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans. † (http://www. bloomberg. com). JPMorgan Chase violated not only banking laws but also securities laws. J. P. Morgan Chase & Co. constituted recklessly unsafe practices, which resulted in misconduct and losses. An article on www. wallstreetonparade. com stated, â€Å"The Bank (Chase) failed to ensure that significant information related to the credit derivatives trading strategy and deficiencies identified in risk management systems and controls was provided in a timely and appropriate manner to OCC examiners. †(Marten). The article also stated that â€Å"The SEC focused on JPMorgan’s ineffective internal controls and failure to keep the Audit Committee of its Board informed in timely manner as required under its own rules and under the Sarbanes- Oxley Act. † (Marten). In other words, JPMorgan broke the rule of the code of conduct which stated that â€Å"No one at J. P. Morgan Chase & Co. should ever sacrifice integrity or give the impression that they have even if they think it would help the firm. † (www. jpmorganchase. com). The SEC found that J. P. Morgan Chase & Co. Chase violated securities laws by filing false information to the SEC. According to the SEC, the company failed to maintain internal control over financial reporting, disclosure controls and procedures, filing of inaccurate reports with the Commission. The SEC, in its settlement document stated that J. P. Morgan Chase & Co. violated Sections 13(a), 13(b) (2) (B) of the Exchange Act and Rules 13a-11, 13a-13, and 13a-15. The JPMorgan Chase code of conduct represents fundamental assets that can be done on behalf of the company. In other words, there are policies that are applied to the Chief Executive Officer, President, Chief Financial Officer, and Chief Accounting Officer of JPMorgan Chase & Co. The purpose of the code of conduct is to endure commitment to integrity. The Code of Conduct is important for JPMorgan Chase & Co. because it lays out the responsibility and expectations that the company has to represent to customers. The company is also responsible for ethical decision-making, which means that doing the right thing whereas speaking up about any violation of the company. According to the Code of Conduct, â€Å"No business unit or location in the Company can adopt policies that are less restrictive than the Code, but some do have rules that are more restrictive. † (www. jpmorganchase. com). The Code means that the business should know and follow all policies even if the rules are hardcore. The Code of Conduct has a decision tree on the company’s website where you would ask yourself a question like, â€Å"Is it legal? † or â€Å"Does it comply with our Code and our Company policies, and the principles of ethical behavior they reflect? † These questions are important when it comes to making decisions. If neither of the questions comply with your decisions, then it could result in some serious consequences. Sharing concerns and reporting violations is very important when it comes to a company’s reputation. According to the Code of Conduct, you should share your concerns without fear, report legal or regulatory preceding that involve you personally. Breaking any security law or banking laws and result in consequences. It is important to speak up about any violations that could result in unethical conduct related to financial services. Maintaining accurate records is also an important task when it comes to a company. According to the company website, â€Å"Internal accounting controls and record keeping policies are essential to the successful operation of our Company and our ability to meet our legal and business requirements. Each of us is responsible for being accurate, complete and honest in Company records and for complying with all of the controls, policies and procedures we have in place. † (www. jpmorganchase. com). False records are unethical and could tarnish the company’s reputation. JPMorgan Chase & Co. ’s major direct holders are James Crown, James Dimon, Douglas Braunstein, Daniel Pinto, and Frank Bisignano. These shareholders own stock in the company. These main holders have the main shares in this company. According to JPMorgan Chase & Co. , outside activities is important because doing outside activities could cause conflict not only for the company but for shareholders as well. By selling stock the company gets money almost no catch. There is no interest to pay and no requirement to pay the money back at all. Even better, equity financing distributes the risk of doing business among a large pool of investors. If the company fails, the founders don’t lose all of their money, they lose several thousand smaller chunks of other people’s money. The money the company makes of its investors is used to pay for its fines and fees. This is why there is much anticipation with the negotiation of the settlement regarding the selling of mortgage-backed securities. This chart from yahoo’s finance reports shows that in October, during the negotiation of the settlement, stock dropped: Settlement & Resolution J. P. Morgan & Chase Co. is under investigation for these unethical practices and risk losing a large sum of money as settlement, as well as criminal charges being placed upon them for their dishonorable actions. There are many legal steps that are being taken to resolve the issue at hand. Some of these steps include hiring an independent monitor or other third party firm to oversee these measures along with ensuring that J. P. Morgan Chase & Co. follows the appropriate guidelines set forth legally and prevent them from practicing any further unethical actions. The person or firm hired must examine each and every home loan before J. P. Morgan Chase will be able to be packed into any type of investments. In order for JP Morgan Chase to continue with home loans and recover from there scandalous acts, they must meet the obligation presented to them and hire an overseer, whether an individual or firm, and have the issues resolved by the end of 2017. Steps that J. P. Morgan Chase & Co. can take to improve its disgraceful situation are: to make some kind of assistance available to the individuals that were hit hard and greatly affected by these poor business practices inflicted by the company. This can be obtained by offering the individuals who invested in some type of loan through J. P. Morgan Chase & Co. an opportunity to refinance their current loan, the donation of bank- owned properties, and new mortgage loans to low and moderate income families (O’Toole). This will hopefully help the individuals that now owe more on their houses then they are worth, and are thus upside down on their loans due to the unethical practices of JP Morgan Chase. If this proves beneficiary to the individuals who took out the loans, JP Morgan may just be able to recover their reputation, if not they will have to live with the disreputable name they have now created. JP Morgan Chase can also buy back all of the mortgages that they put these poor individuals into in the first place in hopes that the individuals may climb out of the dark hole of debt that they were lured into by the scandalous actions of the Chase employers. JP Morgan Chase must help the individuals out of their debt inflicted by the bank if there is to be any hope at recovering their reputation and solving the discriminating issues at hand. This can only be obtained by them offering their support and assistance to find as well as ensure them a better financial loan option. JP Morgan Chase must make right on their word for any betterment to be observed. They can and should take the blame for their wrongful actions by stating that they know they were wrong and immoral in their actions and present the individuals with an apology as well as an ethical solution to fix and make good the issues at hand. JP Morgan must make it right for the individuals who entrusted in them to give them ethical and proper loan assistance in the first place. They need to bail the individuals out of the debt they mischievously placed them in. JP Morgan Chase banks can better themselves in the long run by can buying back all the mortgages that they sold to individuals in the first place. Mortgage loans that they knowingly sold without compliance to the mortgage standards set forth. They can also provide help to their employees who may be under investigation as well by taking full responsibility for the unethical situation and not placing the immoral conduct of the bank on the employees and forcing them to get into trouble. They need to back their employees because some who knew it was wrong didn’t want any part of the unethical situation, but JP Morgan Chase required the employee to perform the immoral practices anyways with the threat that they would lose their jobs if they didn’t abide. The company says it â€Å"is fully reserved for this settlement,† implying it has cash and other savings on hand to meet the requirements. JPMorgan will finish providing relief to borrowers by the end of 2017, the company says (Arnold). The following is a quote from Jamie Dimon: â€Å"We are pleased to have concluded this extensive agreement †¦ and to have resolved the civil claims of the Department of Justice and others. † â€Å"Nonetheless, New York Attorney General Eric Schneiderman, California Attorney General Kamala Harris, Sacramento U. S. Attorney Benjamin Wagner and other officials involved in investigating JPMorgan’s mortgage actions called the settlement a significant government victory† (McCoy). This settlement will resolve a large amount of state and federal investigates into JPMorgan Chase’s selling of mortgage backed securities between 2005 and 2008. Concluding results An article on http://www. scpr. org explains how the settlement money will be distributed, â€Å"Q: How much money will end up in the hands of homeowners? A: The state attorney general’s office said $4 billion of the $13 billion settlement will go toward helping consumers nationwide. That could come in the form of mortgage payment reductions or loan modifications for homeowners, the office said in a press release. The office said they had no estimate on how much of the $4 billion borrower’s relief would go to California homeowners, but they believe the state will receive a â€Å"good amount of relief. † JPMorgan declined to comment on the percentage that will be directed to Californians. Separate from the borrower’s relief, California did receive nearly $300 million in damages out of the $13 billion settlement that will go to public employee and teacher pension funds, CalPERS and CalSTRS. Q: What will determine which homeowners get money from the $4 billion portion of the settlement? A: The state attorney general’s office said Californians who may qualify for the relief would likely have gotten mortgages with Washington Mutual and Bear Stearns, which are now part of JPMorgan. Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA, said he thinks state agencies may reach out to individuals who are in danger of foreclosure and offer some mortgage modification, such as interest rate relief. Q: When will homeowners receive this money? A: It’s unclear how soon Californians could qualify to receive a portion of the borrower’s relief. The state attorney general’s office said the agency that will handle those decisions hasn’t been determined yet. Q: Will the settlement have an effect on the housing market? A: Gabriel said he doesn’t think there will be any perceptible effect on the direction of the housing market as a result of the settlement. He said what’s notable is that JPMorgan had to pay a large fine. The $13 billion JPMorgan settlement is roughly three times more than what BP paid to settle criminal charges related to the Deepwater Horizon oil spill, according to Gabriel. â€Å"It’s a big deal for JPMorgan and it’s a big win for the U. S. government,† Gabriel said. â€Å"It’s a win for the point of view that there were fraudulent practices in the packaging of mortgages into mortgage-backed securities on the part of major investment houses. † Gabriel said he doesn’t think this is the end of such settlements and the government is â€Å"in all likelihood working its way around Wall Street now with the precedent of a very big settlement in its back pocket. † Q: Is the foreclosure crisis over? A: Reports show the number of foreclosures has steadily declined. But Peter Kuhns of the Alliance of Californians for Community Empowerment said it’s still a major problem. â€Å"It’s massive. † Kuhns said. â€Å"There are estimates that somewhere close to a third of all California homeowners with mortgages are underwater on their loans, that they owe more money than their house is worth. † Kuhns said he hopes that the $4 billion borrower’s relief will go toward helping homeowners reduce the amount of money they owe on their mortgage payments. † (lee) This shows progress but it will not be enough to keep the company’s consumer’s happy. J. P. Morgan Chase & Co. must maintain an ethical and professional work pace. It will take time but doing things correctly, the company’s reputation can be salvaged. Shareholder’s don’t seem to be losing trust since the agreement on the settlement. Shares are at a healthy fifty-seven. The Board of Directors must put these changes into action as soon as possible. They must start the process towards recovery at once.