More trouble for JPMorgan

By Wire services | July 3, 2012 | Last updated on July 3, 2012
2 min read

JPMorgan Chase is under scrutiny again.

The Financial Times reports the Federal Energy Regulatory Commission, which is the U.S. electricity regulator, has subpoenaed JPMorgan Chase twice in the past three months.

Officials are investigating whether the bank manipulated power markets in California and the Midwest region. The group has also revealed the company may have inflated electricity costs by at least $73 million.

While the bank has provided few details, it did tell the Financial Times, “We believe we have complied in all respects with the law, as well as FERC rules and applicable tariffs, governing this market.”

This isn’t the first time the bank has been accused of neglecting clients and acting in its own interest.

Read: Regulators eye $2-billion trading loss

Besides having reported a massive trading loss in recent months, the New York Times reports the bank also prioritized sales over clients’ needs when facing a serious slump in earnings during the onset of the 2008 financial crisis.

Brokers and financial advisors say the bank encouraged them to favor its own products, even if competitors offered superior options. The Times also found the bank exaggerated the possible returns offered by its products in marketing materials.

While JPMorgan Chase isn’t the only bank with an advisory business catering to mom-and-pop investors, it’s one of the few that sells funds it creates. Many of its peers have backed away from offering their own funds due to the perceived conflicts of interest.

In other news, JPMorgan Chase stock declined more than 2% at the end of last week after a published report said its loss could be far higher than first estimated.

The New York Times, citing an internal report at the bank, reports the loss could reach $9 billion, almost five times the original $2 billion publicized.

In a hearing before the House Financial Services Committee last week, Dimon was dismissive when asked if JPMorgan’s losses could total half a trillion or a trillion dollars. He replied, “Not unless the Earth is hit by the moon.”

The company is expected to provide more detail when it reports its quarterly earnings July 13.

“The bottom line is the reputation of JPMorgan is hurt,” says Paul Miller Jr., an analyst for FBR Capital Markets & Co.

The loss has also heightened concerns about how much risk the biggest banks still pose to the U.S. financial system.

Read: Volcker Rule essential, for a Q&A about the risks associated with major banks and about JP Morgan’s loss, with CFA’s head of capital markets policy.

While Dimon avoided putting an exact number on the bank’s trading loss, he did say the company would have a solidly profitable quarter.

Read more on JPMorgan:

FBI investigates JP Morgan

Top bank chiefs (Dimon included) enjoy pay raises

Dimon testifies, defends regulators

London Whale leaving, regulation debate continues

Two JP Morgan shareholders file lawsuits

Wire services