JPMorgan Chase

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JPMorgan Chase & Co. is a multinational banking corporation that offers stock brokerage, investment banking and conventional retail banking. It is the largest bank in the United States by assets and market capitalization.[1]

The bank is the result of a series of mergers of various banks with long histories. One of these, the Bank of Manhattan Company dates back to 1799. In the late 1800s and early 1900s, J. P. Morgan with financing from the Rothschild family built an investment bank to finance other companies. In the 1970s and 1980s, David Rockefeller built the Chase Manhattan Bank into one of the most successful commercial banks in the world. All of these became a part of the current JPMorgan Chase.

In recent years, JPMorgan has grown during the difficulties experienced by the financial sector. At the end of 2007, Bear Stearns & Co. Inc. was the fifth largest investment bank in the United States but the value of its stock had declined through the second half of 2007. On Friday, March 14, 2008 Bear Stearns lost 47% of its stock price to close at $30.00 per share under rumors that clients were withdrawing capital from the bank. On March 16, 2008, after a weekend of intense negotiations between JPMorgan, Bear, and the federal government, JPMorgan Chase announced that it had plans to acquire Bear Stearns in a stock swap worth $2.00 per share or $240 million pending shareholder approval scheduled within 90 days. In the interim, JPMorgan Chase agreed to guarantee all Bear Stearns trades and business process flows.[2] Two days later, on March 18, 2008, JPMorgan Chase formally announced the acquisition of Bear Stearns for $236 million. The stock swap agreement was signed in the late-night hours of March 18, 2008, with JPMorgan agreeing to exchange 0.05473 of each of its shares upon closure of the merger for one Bear share, valuing the Bear shares at $2 each. [3] The $2 price drew public outrage from Bear Stearns shareholders and they threatened to block the deal. On March 24, 2008, the price was raised to about $10 per share. Under the revised terms, JPMorgan also immediately acquired a 39.5% stake in Bear Stearns (using newly issued shares) at the new offer price and gained a commitment from the board (representing another 10% of the share capital) that its members would vote in favor of the new deal. With sufficient commitments thus in hand to ensure a successful shareholder vote, the merger was completed on June 2, 2008.

On September 25, 2008, JPMorgan Chase bought most of the banking operations of Washington Mutual (WaMu) from the receivership of the Federal Deposit Insurance Corporation after the Office of Thrift Supervision had seized Washington Mutual Bank and placed it into receivership. It was the largest bank failure in American history. The FDIC sold the bank's deposits, assets, and secured debt obligations to JPMorgan Chase & Co for $1.836 billion, which re-opened the bank the following day. As a result of the takeover, Washington Mutual shareholders lost all their equity.[4] JPMorgan Chase raised $10 billion in a stock sale to cover writedowns and losses after taking on deposits and branches of Washington Mutual.[5] Through the acquisition, JPMorgan also bought the former accounts of Providian Financial, a credit card issuer WaMu acquired in 2005.

In November 2009, JPMorgan Chase agreed to a $722 million settlement with the U.S. Securities and Exchange Commission (SEC) to end a probe into sales of financial derivatives that lead Jefferson County, Alabama to the brink of bankruptcy. The settlement came a week after Birmingham, Alabama Mayor Larry Langford was convicted on 60 counts of bribery, money laundering, and tax evasion related to the county's bond swaps. The SEC alleged that JPMorgan, which had been chosen by the county commissioners to underwrite the floating-rate sewer bond deals and provide interest-rate swaps, had made undisclosed payments to close friends of the commissioners in exchange for the deal. The SEC alleged that JPMorgan had made up for the costs by charging higher interest rates on the swaps.[6]

In January 2011, JPMorgan Chase admitted that it wrongly overcharged several thousand military families for their mortgages. JPMorgan also admitted to improperly foreclosing on more than a dozen military families. These actions violated the Servicemembers Civil Relief Act which automatically lowers mortgage rates to 6 percent, and bars foreclosure proceedings of active duty personnel. An official stated that the situation was "grim", and Chase initially stated it would be refunding up to $2,000,000 to those who were overcharged, and that families improperly foreclosed on have gotten or will get their homes back.[7]

In April and May 2012 very large trading losses occurred at JPMorgan's Chief Investment Office, based on transactions booked through its London branch. A series of derivative transactions involving credit default swaps (CDS) were entered into, reportedly as part of the bank's "hedging" strategy. Trader Bruno Iksil, nicknamed the "London Whale" accumulated very large CDS positions in the market. JPMorgan announced that it estimated the trading loss as exceeding $2 billion, but the final actual loss is expected to be substantially larger. Many investigations were launched to investigate the risk management system and controls in place and operating at the firm. When CEO Jamie Dimon testified before Congress on June 19, he refused to explain what went wrong with the the derivatives, but claimed they were designed to hedge JPMorgan's risks in financial markets. Ina Drew, the Chief Investment Officer of JPMorgan, resigned when the loss was announced.

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References

  1. "BofA Swings to Profit in Muddled Quarter", The Wall Street Journal, October 19, 2011. 
  2. Guerrera, Francesco (March 16, 2008). Bear races to forge deal with JPMorgan. Financial Times. Retrieved on June 17, 2012.
  3. Quinn, James. "JP Morgan Chase bags bargain Bear Stearns", The Daily Telegraph, March 19, 2008. Retrieved on June 17, 2012. 
  4. Ellis, David. "JPMorgan buys WaMu", CNNMoney.com, September 25, 2008.
  5. JPMorgan Raises $10 billion in Stock Sale After WaMu (Update3)
  6. Braun, Martin Z. & Selway, William (November 4, 2009), "JPMorgan Ends SEC Alabama Swap Probe for $722 million", Bloomberg L.P., retrieved June 17, 2012
  7. "No. 2 bank overcharged troops on mortgages", msnbc.com, January 17, 2011
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