JPMorgan Chase & Co. (JPM - Free Report) will shell out $1.0 billion as settlement over the resolution of two ongoing investigations against it. The company will pay $920 million for its “London Whale” trading loss scandal and $80 million for charging its customers for services that it never offered.
In 2012, JPMorgan suffered a trading loss of $6.2 billion as it failed to foresee trading risks as well as regulate traders who adopted unfair means to downsize losses. Due to this the investors as well as the regulators were misled, prompting the investigation.
As per the terms of “London Whale” settlement, JPMorgan will pay $200 million to the Securities and Exchange Commission (SEC), $200 million to the US Federal Reserve, $300 million to the US Office of the Comptroller of the Currency (OCC), and $220 million to the UK Financial Conduct Authority. Moreover, the bank has accepted its faults publicly.
However, the overseer of derivatives market, Commodities Futures Trading Commission’s (CFTC) has not joined the settlement deal. The CFTC is probing whether JPMorgan’s trading desk manipulated a credit default index – IG9 – at the time of trading credit derivatives, which led to trading losses of approximately $6.2 billion.
Further, JPMorgan was being investigated by the OCC and the Consumer Financial Protection Bureau for levying customers with false service charges for identity theft protection, which the bank never provided. JPMorgan has agreed to pay a fine of $80 million, having already compensated $309 million to customers.
Such strong regulatory actions are required to prevent financial institutions from taking risks beyond their capacity, which would otherwise lead to fatal consequences similar to the recent financial crisis.
However, even the huge settlement fee does not absolve JPMorgan of legal hassles altogether. The company is facing a probe regarding its hiring practices in China which has now spread across Asia. Moreover, along with Bank of America Corp. (BAC - Free Report) , Citigroup, Inc. (C - Free Report) and The Goldman Sachs Group, Inc. (GS - Free Report) , JPMorgan is charged with mortgage related lawsuits pertaining to the financial crisis.
JPMorgan currently carries a Zacks Rank #3 (Hold).