JPMorgan to Pay $410 Million in U.S. FERC Settlement (Jul 2013)

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Source: Bloomberg – JPMorgan to Pay $410 Million in U.S. FERC Settlement

Notable excerpts:

JPMorgan Chase & Co. (JPM) will pay $410 million to settle U.S. Federal Energy Regulatory Commission allegations that the bank manipulated power markets, enriching itself at the expense of consumers in California and the Midwest from 2010 to 2012.

The bank agreed to pay a U.S. civil penalty of $285 million and return $125 million in ill-gotten profits to electricity ratepayers, according to a FERC order today. JPMorgan also agreed to give up claims to $262 million worth of disputed payments from California’s grid operator, the state authority said in a separate statement.

“We’re pleased to have this matter behind us,” Brian Marchiony, a spokesman for New York-based JPMorgan, the largest U.S. bank by market value, said in a phone interview.

The case marks another setback for JPMorgan, which sailed through the 2008 financial crisis without a single quarterly loss. Last year JPMorgan lost more than $6.2 billion from wrong-way derivatives bets placed by traders in London. The incident prompted a U.S. Senate investigation, the departure of two senior executives and a debate over whether Chief Executive Officer Jamie Dimon, 57, should keep his chairman role. In May shareholders re-elected him as chairman.

JPMorgan picked the pockets of California households and businesses, and their manipulation increased the electric bills that people pay,” Tyson Slocum, director of the energy program at Public Citizen, a Washington-based consumer advocacy group, said in an interview yesterday.

The settlement is a record for the FERC since Congress gave it additional powers to police energy markets in 2005, after the collapse of energy trader Enron Corp. JPMorgan’s $285 million civil penalty is the largest paid to the regulator by any company. The FERC on July 16 assessed a $435 million penalty to Barclays Plc (BARC) for alleged market manipulation, which will be a record if it is paid. The company has vowed to challenge in court.

JPMorgan’s brazen, Enron-style market manipulation cost California ratepayers over $120 million,” Representative Henry Waxman, a California Democrat, said in an e-mail. “Congress provided FERC with the authority to stop precisely these kinds of fraudulent schemes.”

The FERC said a JPMorgan energy-trading unit engaged in 12 bidding strategies in wholesale energy markets from September 2010 to November 2012, resulting in tens of millions of dollars in overpayments from the grid operators. The agency announced the violations yesterday after investigating the bank’s energy-trading practices for more than a year.

Of the $410 million, $124 million will go to the California electric-grid operator and $1 million will go to an operator in the Midwest, according to the agency. The bank accepted the facts in the settlement agreement without admitting or denying wrongdoing, the FERC said in a statement.

The settlement won’t have a material impact on the bank’s earnings since it has previously set aside reserves to cover the costs, Marchiony, the JPMorgan spokesman, said.

The agreement to settle is another scandal that hurts the bank’s credibility with customers, said Charles Peabody, an analyst with Portales Partners in New York. “It’s very damning because they were duping others,” Peabody said in an interview.

Since 2011, the FERC has revealed at least 13 probes of energy-market gaming.

The regulator on July 16 ordered Barclays Plc and four of the company’s former traders to pay a combined $487.9 million in fines and penalties for engaging in what the agency said was a scheme to manipulate energy markets in the Western U.S. from 2006 and 2008. The bank has vowed to fight the penalties.

Deutsche Bank AG agreed on Jan. 22 to pay $1.6 million to resolve FERC claims that an energy-trading unit manipulated markets in 2010. The Frankfurt-based bank didn’t admit or deny wrongdoing.

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