JPMorgan Chase, And Dimon, Starting To Sweat About Everything

JPMorgan Chase, And Dimon, Starting To Sweat About Everything

I put two new columns up at Forbes recently that talk about JPMorgan, PwC, Senator Levin's "Whale" hearings, and all the other stuff JPMorgan and Jamie Dimon are really worried about.  The New York Times had an interesting scoop about JPMorgan and Deloitte and the foreclosure reviews that I followed up on, too, in "JPMorgan Chase Still Haunted By Foreclosure Reviews, And More".

Update April 4: The GAO has now issued its report on the regulators and their use of the third-party consultants.  I wrote about it at Forbes.com.

If you're wondering when it's all going to end, it will end with Jamie Dimon leaving JPMorgan. Although I predicted that he'd be ousted in 2012 based on MF Global problems it's now more possible than ever. It's no small thing that the New York Times is openly talking about a mutiny by the bank's directors.

Here's the second paragraph from a Jessica Silver-Greenberg/Ben Protess March 26 New York Times DealBook piece:

At least two board members are worried about the mounting problems, and some top executives fear that the bank's relationships in Washington have frayed as JPMorgan becomes a focus of federal investigations.

One of the quisling directors? I think it could be none other than KPMG's Tim Flynn. From my Forbes column on April 1:

Why is Flynn the director most vulnerable to pressure from regulators and prosecutors? He's the guy who threw his own partners under the bus and agreed to pay almost $500 million to save KPMG when it risked criminal indictment for tax shelter abuses. Flynn saved his own skin and his own reputation. I think he'll do what has to be done at JPMorgan when the Feds come looking for scalps.

The rest of my April 1 column talks about a mysterious error that the New York Times reports caused JPMorgan to plan on paying more to foreclosure review eligible borrowers. How could that happen? Well, it's not what it seems.

Each bank was given a total settlement payment and an "other assistance" number and then tasked to "back into" the amounts due borrowers by assigning them to one or more harm categories. JPMorgan must have put 5,000 more borrowers into the wrong category, probably #3, foreclosed on while in bankruptcy. Why bankruptcy?  It's the category with the highest potential payout for a borrower. Putting too many people in that category would have shortchanged others given a fixed amount to allocate.  So JPM agreed to pony up more bucks.

What's wrong this picture? My sources tell me that at least 50% of JPMorgan's bankruptcy portfolio was riddled with payment and fee calculation errors at the start of the process. Any estimate of the number of borrowers harmed during the review period for this category by Deloitte, or JPMorgan, is probably still significantly understated. A strategic mistake made by the regulators when the consent decrees were signed exacerbated the problem. Regulators forced all twelve servicers to move bankruptcy processing activities out of specialized units to their general cash management unit. Processing of Chapter 13 payment plans, for example, went haywire when it was transferred to inexperienced groups with no knowledge of the rules that differ across fifty states. No servicer has a data repository with automated processing rules designed to keep files and calculations up to date with the constant changes.

There's more, a lot more.

Read this article in its entirety at the re: The Auditors, a blog by Francine McKenna.

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