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Thursday, Mar 30, 2023

Bank Agrees to Pay $920 Million for ‘London Whale’ Scandal

JPMorgan Chase & Co. is pretty big, actually the nation’s biggest bank at $2.5 trillion in assets. It better be after it agreed to pay about $1 billion in fines to a bunch of regulatory agencies, stemming from the New York megabank’s involvement in a derivative trading scandal, and for charging customers for services it never delivered.

The biggest chunk of that sum, $920 million, was assessed by three federal agencies and one in the United Kingdom over the lack of oversight by the bank to its hedge fund operations.

The losses that unit sustained reached epic proportions last year, and they continued to escalate this year to more than $6 billion. The trades of credit default swaps — remember those instruments? — centered on massive positions taken by two traders, one of whom was given the nickname “the London Whale.”

According to reports, the complex instruments were described as “a derivative of a derivative.” A derivative is a financial security that derives its value from another underlying value such as an asset, index or interest rate.

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The heavy civil settlement also included Chase’s admitting it was guilty of wrongdoing, something that has been hard to extract from the nation’s biggest banks in many past legal settlements.

In a separate settlement, Chase agreed to refund $309 million to customers who were billed for credit card protection services they never received. In connection with these overcharges, the megabank agreed to $80 million in civil penalties from two federal agencies.

James Dimon, Chase’s CEO who initially downplayed the derivative trading scandal as “a tempest in a teapot,” was singing a different tune in a prepared statement on the recent settlement.

“We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them,” Dimon said.

These recent settlements won’t end Chase’s considerable liability on other legal fronts, including the criminal prosecution of the two traders involved in the trading scandal.

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East West Bank buys Metro United: Pasadena-based East West Bank agreed to buy MetroCorp Bancshares Inc., the parent of San Diego-based Metro United Bank, and a Texas bank, earlier this month.

While it is headquartered here, Metro United has only one office in Kearny Mesa. The five other offices are in Los Angeles and San Francisco. Its total assets as of June were $457 million. The local branch had some $100 million in deposits.

With the acquisition, which is expected to be completed by the first quarter of next year, East West solidifies its position as the largest

Chinese-American bank in the nation with about $24 billion in assets and 136 branches in six states.

MetroBank, based in Houston, the other bank owned by MetroCorp, had total assets of $1.6 billion as of the end of June.

East West agreed to pay MetroCorp $14.60 per share or an aggregate $273 million based on its 18.7 million outstanding shares.

The deal still requires approval from MetroCorp’s shareholders and banking regulators.

Excluding one-time acquisition costs, East West said the transaction should increase its 2014 earnings by 4 percent.

Assuming the acquisition is completed, the San Diego area would have only one Chinese-American bank branch, Cathay Bank, also in the Kearny Mesa neighborhood.

• • •

Argent opens in California: As it announced several weeks ago, Sterling Financial Corp., the Spokane, Wash.-based parent company of Sonoma Bank and San Diego-based Borrego Springs Bank, officially changed the name for those banks to Argent Bank last week. The intent was to unify Sterling’s California banks under a single name.

Argent, with two offices in the county and 16 overall, will bring a cohesive identity to the help the bank’s teams deliver the best financial solutions to its customers, said David DePillo, Sterling’s vice chairman.

Earlier this month, Sterling announced it had agreed to be acquired by Portland, Ore.-based Umpqua Holdings Corp. for an aggregate $1.9 billion.

Sterling’s two private equity firm investors, Warburg Pincus and Thomas H. Lee Partners, stand to profit handsomely from the transaction, with each owning a 23 percent stake.

Small Change: The San Diego branch of imortgage said it is helping local teachers obtain assistance with down payments with a program called “Extra Credit Teachers Home Purchase Assistance.” The mortgage bank is providing a deferred payment junior loan to school employees ranging from $7,500 to $15,000, depending on the area where the house is bought. The program requires the loan recipients to be first-time homebuyers and the loan be combined only with qualified California Housing Finance Agency first mortgage. … Sister companies CUSO Financial Services LP and Sorrento Pacific Financial LLC, full-service brokers serving financial institutions, ranked fifth in Bank Investment Consultant magazine’s Top 10 Third-Party Marketers list.

Send news about locally based financial institutions to Mike Allen via email at mallen@sdbj.com. He can be reached at 858-277-6359.


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