JPMorgan Chase & Co. (JPM) Shares Bought by Saturna Capital

23 Dec 2015 | Author: | No comments yet »

Gateway City/Who’s Here: Chase a major player in Florida banking since 2009.

New York: JPMorgan Chase and Co. will pay more than $300 million to settle US allegations that it didn’t properly inform clients about what the Securities and Exchange Commission called numerous conflicts of interest in how it managed customers’ money over a half decade.But in Miami, Chase branch offices were not a common sight until it took over bankrupt Washington Mutual Bank and its branch network six years ago and began an aggressive expansion throughout the state.

The company failed to call attention to the fact that two of its large wealth-management divisions favor investing in their own products, which are more expensive, Bloomberg reports. The largest US bank by assets failed to tell customers that it reaped profits by putting their money into mutual funds and hedge funds that generated fees for the company, the SEC said in announcing $267 million in penalties and disgorgement against JPMorgan. JPMorgan Chase Bank does business as Chase. “When Chase decided to purchase WaMu [Washington Mutual] back in 2009, we only had nine branches in Florida, mainly in West Palm Beach, Boca and Naples,” said George Acevedo, the Miami-based head of Chase consumer banking and wealth management banking for Florida, in response to questions sent by email. “Our branch network has grown to 393 locations in the state, and about 150 in South Florida.” To make banking with Chase more convenient, the firm also has built up its ATM network and now has about 700 in the tri-county area out of 1,400 statewide.

The branches in Miami-Dade, Broward and Palm Beach counties serve consumers and small business clients, he said, as well as larger commercial customers. JPMorgan admitted disclosure failures from 2008 to 2013 related to two units that manage money—its securities subsidiary and its nationally chartered bank—as part of the SEC settlement. The fines, which come with an admission of wrongdoing by JPMorgan, are split between the SEC, which will receive $267 million, and the Commodities Futures Trading Commission, which will receive $40 million. “These J.P.

The New York-based bank said that the omissions in its communications were unintentional and that it has since enhanced its disclosures. “Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving,” Andrew J. The units also did not disclose financial incentives received for investing clients in third-party funds. “There was significant harm to clients here,” said Andrew Ceresney, enforcement director for the SEC. “The undisclosed conflicts were pervasive.” Between 2008 and 2013, J.P. JPMorgan has been penalized more than $23 billion by U.S. authorities in recent years, according to Bloomberg, settling allegations that included conspiring to manipulate foreign-currency rates, allowing its “London Whale” trader to exceed risk limits, failing to flag transactions related to Bernard Madoff’s Ponzi scheme and misrepresenting the value of mortgage-backed securities.

And Florida is a key market for Chase. “We are the second-largest growth market for Chase in the country,” he said. “We are very bullish about Florida.” According to the Federal Deposit Insurance Corporation’s figures for June 30, 2015, Chase was in fourth place for deposits in Florida, with more than $24.9 billion, or 4.96 percent of the market. “Generally speaking, customers are looking for the most convenient bank, and our No. 1 priority is to become the most convenient bank in the country,” Acevedo said. The disclosure weaknesses cited in the settlements “were not intentional and we regret them,” said Darin Oduyoye, a JPMorgan spokesman. “We have always strived for full transparency in client communications, and in the last two years have further enhanced our disclosures in support of that goal.” While the agency extracted a record penalty for an asset manager, JPMorgan can continue operating as it has been in one of its most profitable businesses.

Chase has invested heavily in technology, so that branches and other channels — like online banking — can provide services wherever customers are located, he said. The $307 million in fines and disgorgement accounts for a bit more than 1% of the company’s annual operating profits, or about a month of those at its asset-management division.

In addition, the bank is converting its branches to “advice centers,” so clients can readily obtain counseling on how to manage their money, and staffs its offices with bankers who understand the needs of small businesses and can meet their lending and cash management requirements. “Our most critical focus has been on improving the customer experience,” Acevedo said. “Our efforts have earned us the No. 1 spot in customer service from J.D. The settlement, announced on the Friday before Christmas, didn’t go far enough, said Dennis Kelleher, a lawyer who runs Better Markets, a consumer advocacy group. “The conduct involves steering clients into proprietary products so brokers get higher commissions and JPMorgan gets good asset-management numbers,” said Kelleher, who said the practices remain costly for customers, additional disclosures notwithstanding. “This wasn’t a rogue trader. The bank will also pay a $40 million penalty to the CFTC and will disgorge $60 million in profits, an estimate of the “ill-gotten gains” it collected because of the poor and missing disclosures.

The SEC’s inquiries looked into JPMorgan Asset Management, a unit that grew rapidly after the 2008 financial crisis, as new regulations crimped areas including hedge-fund and proprietary trading operations that have traditionally been lucrative for Wall Street firms. The bank expanded an operation that pairs wealth management and investment funds in one reporting structure, run by Mary Erdoes, seen as one of a half-dozen in-house favourites to eventually replace chief executive officer Jamie Dimon.

He moved to Florida to help expand Chase operations after the WaMu acquisition and, prior to taking over his current position in Miami, helped Chase enter the retail banking market in Jacksonville. Earlier this year, the Department of Labor proposed new rules that would require the brokers making recommendations in retirement accounts to keep investors’ best interest in mind. It has committed $5 million over the next five years to increasing job skills in partnership with the Beacon Council’s One Community One Goal initiative. Financial advisers and wealth managers are already held to the so-called fiduciary standard, which comes with requirements that advisers tell clients when there may be a conflict of interest affecting their recommendations. It also awarded a $440,000 grant to Broward College to develop a certification program in mechatronics, a high-demand sector in technology, and provides financial and volunteer support to other organizations, including the Urban League’s Center for Working Families, Habitat for Humanity and Feeding Children Everywhere.

It also had the highest percentage growth in asset inflows of any large manager in the five years through 2014, ending the year with $1.7 trillion under management, according to a February presentation to investors. That included not telling customers of a retail product, Chase Strategic Portfolio, that it was designed to favour in-house mutual funds, or that the bank might put them into a higher-fee fund when a lower-fee version of the same fund was available. The bank could have been barred from that lucrative activity based on investor protections that automatically disqualify firms found to have violated securities laws. That so-called waiver came with a condition that JPMorgan hire an independent consultant to annually certify its plan for complying with rules for private fundraising.

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