By Valentin KATASONOV
Vibrant events are unfolding in the world of finances. One scandal comes after another and that’s the way it goes. Especially in the United States. As soon as the curtain went down in another act of the play called US Debt Ceiling Revision, the US media switched over to a scandalous story related to the biggest Wall Street major – J.P. Morgan Chase. It is the largest bank in the United States by assets, and as of 2012, it ranks as the second largest bank in the world (after HSBC) with total assets of $2.3 trillion and branches in 60 countries. According to the bank’s website, every sixth American is its client.
This September J.P. Morgan Chase settled its judicial and out-of- court disputes with British and US regulators. It surfaced that it was involved in the same tricks tried last decade by notorious Lehman Brothers bank. As is known it hid its losses by artificially raising income to deceive clients, partners and financial regulators. Lehman Brothers traders covered up $50 billion losses. Five years ago the bank collapsed triggering a big wave of financial crisis in the United States spilling over to encompass the whole world.
America and British regulators accused J.P. Morgan of poor oversight over its personnel and coming up with fraudulent accounting in 2012. The story is known as the case of London Whale. The London branch traders overvalued the credit derivatives’ portfolio to mask $ 6, 2 billion losses. The fraud took place in the unit destined to improve the risk management system and strengthen the oversight over deposits. The London branch gimmickry, allegedly aimed to hedge against risks, resulted in losses measured in billions. The British branch of J.P. Morgan acquired such a large package of illiquid derivatives, that its chief trader Bruno Iksil was nicknamed the London Whale for risky trading (“lick in and walk over water”). Later the bank admitted the London traders played the game to get profit using the banks deposits covered by state insurance. Totally J.P. Morgan Chase agreed to pay over $1 billion as compensations and penalties to five financial regulators. Including (million dollars):
The U.S. SecuritiesandExchange Commission – 200;
The UK Professional Oversight Board(POB) - 200;
The US Office of the Controller of the Currency -300;
The US Federal Reserve System (FRS) – 200;
The USCommodity FuturesTrading Commission– 100.
Of course, the compensations, penalties and legal costs don’t look so huge in comparison with its sky high financial accounting indexes (turnover, operating profit, and net income). But the litigations and out-of-court disputes damage the reputation bringing down the rating to result in losses that are hard to calculate. Besides, with the gimmickry surfaced, official accounting figures happen to be “inflated” or false. Is there any guarantee the banks schemes are limited by the story of the “London Whale”? Who knows, perhaps the bank incurs losses instead of bringing income in? J.P. Morgan Chase is a classic Wall Street actor. Any Wall Street office holder can trigger a banking and financial crisis, even it’s the number one among them.
On October 17 media reported that J.P. Morgan Chase introduced limits on clients’ cash transactions and banned outgoing bank wires. The bank’s leadership had to confirm the information… A week ago the bank issued letters to account holders notifying them that as of Nov 17th, the bank will limit all cash transactions (including deposits, withdrawals, and ATM usage) to $50,000/month.The bank will stop processing any outgoing international bank wire, and that any monthly cash transactions in excess of the new $50,000 limit will be subject to penalties and fees.
First of all, the measures will strike the US small and medium business. Many companies will be denied the ability to conduct any significant transactions to acquire shares abroad. Paying wages will become a headache. Some reporters say that small and medium business is just the beginning. J.P. Morgan Chase and other Wall Street loan sharks will strike big business too.
The letters issued give no reason for the decision. The notifications refer to “new legal requirements” introduced in the country and the bank is the first to comply. Then the question arises – what exactly new legal requirements are meant? No new regulations are known to have been introduced in the United States. Some say J.P. Morgan Chase is allegedly implementing some new legal requirements aimed at limiting capital flows going out of the country. It’s hard to believe. So far the United States has practiced no administrative methods to limit outflows abroad. It preferred to introduce indirect measures. For instance, the Foreign Account Tax Compliance Act(FATCA) effective since 2010 is viewed as a means to limit capital export reducing the attractiveness of foreign investments for US business. The US has made attempts, at least the ones of limited scope, to contain capital outflows, but those have been soft steps mainly boiling down to nothing else but additional taxes on investments in other countries.
I have two versions explaining the events described above. First, the five financial regulators have made J.P. Morgan Chase go through a serious “execution”. A burnt child dreads the fire becoming once bitten twice shy. The bank cannot be too careful. So it does its best to demonstrate the ability and willingness to comply with the requirements put forward by the regulators. All these documents are too big in size and written in mushy language pursuing various aims, like money laundering, the prevention of funding terrorism, the fight against corruption, tax evasion etc… To look impeccable in the eyes of financial regulators, a bank should actually avoid any cash and transborder wire transactions. I don’t exclude J.P. Morgan Chase is too zealous to demonstrate its readiness to comply. Perhaps it hopes to prevent new inquiries by the regulators and make them refocus attention on other banks.
Still, I believe a different interpretation of events sounds more convincingly. The bank is getting ready to face a crisis. In banking business it always results in scores of clients rushing to withdraw cash. J.P. Morgan Chase may be the Wall Street number one, but I’m not sure it will end well. The Lehman Brothers story showed that in the world of bankers the formula Too Big to Fail may work, but there are exclusions from the rule. J.P. Morgan Chase has taken into account the lesson of Cyprus. To save the banking sector, the central bank of Cyprus has introduced strict controls on withdrawing cash and transferring moneyabroad from bank accounts. J.P. Morgan Chase may not be waiting for corresponding instructions to come from above and starts to take appropriate measures on its own. If a banking crisis is triggered, there is no doubt the bank accounts confiscation pattern tried in Cyprus will be used. So J.P. Morgan Chase is trying to retain what it will need afterwards to face the scheme introduced when the time comes.
In this case, J.P. Morgan Chase is acting as a harbinger of incoming banking crisis to strike the world.
CITIGROUP IS READY TO GO BELLY-UP!
Citibank is playing a very dirty game against its customers in Greece. The bank makes its customers sign that their CDs will be automatically be renewed without their approval. Then the bank renews the CDs at the infinitesimal rate of 0.1%!
But getting just one thousandth interest rate on CDs is robbery, pure and simple. Citibank officers at the Paleo Faliro branch declare they have a right to do this scheme, because their customers do not care about interest rates, but the prestige of dealing with the Citibank!
Prestige of dealing with Citibank is a joke, as Citibank has lost its good will. Citigroup suffered huge losses during the global financial crisis of 2008 and was rescued in a massive stimulus package by the U.S. government, but this time around the government cannot rescue it again.
Now Citibank is in big trouble again, playing dirty schemes, such as the infinitesimal 0.1% on CDs. Citigroup is ready to go belly up. A bank cannot survive by robbing its customers.
A securities arbitration panel has ruled that Citigroup must pay $3.1 million to a customer steered to invest in a politician's real estate developments that went broke.
Nasirdin Madhany and his wife, Zeenat Madhany, of Orlando, Florida, filed the case, reporting negligence, fraud, and other Citibank misdeeds involving millions of dollars in stupid real estate investments just to generate commissions for Citibank.
We are thrilled for the Madhanys. They worked very hard for their retirement. It was a just result because a criminal bank must be held responsible when it robs its customers. Citibank has a consistent track record of defrauding its customers, but its days of operation are very limited. It will be a deja vu of Lehman Brothers bankruptcy, with Citibank officers carrying their belongings in cardboard cases!
Sherry Hunt, a former Citi employee, took Citi to court for fraud—and won $31 million. Citibank was buying mortgages from outside lenders with doctored tax forms, phony appraisals and missing signatures, she says. It was Hunt’s job to identify these defects, and she did, in regular reports to her bosses. Executives buried Hunt’s findings before, during, and after the financial crisis, and even into 2012.
The government requires lenders to certify that insured loans meet FHA standards. Citibank flouted those standards. Citibank passed along subpar loans to the FHA, making substantial profits through the sale and securitization of FHA-backed insured mortgages while it wrongfully endorsed mortgages that were not eligible.
Citigroup was fined $75 million for misleading investors over subprime assets. Charges laid by the Securities and Exchange Commission accuse Citigroup of repeatedly making misleading statements and improper disclosures in its quarterly earnings releases during 2007. Citigroup claimed its exposure to high-risk sub-prime mortgages was no more than $13 billion when in fact it was more than $50 billion.
Citigroup agreed to pay $590 million over claims that it deceived its customers by hiding the extent of its dealings in toxic subprime debt.
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