Two record-breaking settlements against two major Wall Street firms: Which one will be finalized first?
For weeks, Wall Street observers have been anticipating resolutions of multiyear government investigations of very different financial giants: JPMorgan Chase (JPM) and SAC Capital. One is the largest bank in the U.S., the second-largest in the world by assets, and is also publicly traded. The other was, until recently, one of the world’s biggest hedge funds, with $15 billion in assets at the beginning of the year; SAC is owned by its founder, Steven Cohen.
Both are extremely profitable: JPMorgan earned $21.3 billion in 2012, while SAC was the most profitable hedge fund in the first 10 months of 2012, according to Bloomberg Markets, throwing off $789.5 million for its traders and portfolio managers.
Both have also faced government scrutiny by federal prosecutors, the FBI, and the Securities and Exchange Commission. In JPMorgan’s case, a handful of federal and state regulatory probes have focused on sales of mortgage securities leading up to the 2008 financial crisis. SAC has been under investigation for alleged insider trading for more than seven years. Leaders of both enterprises have argued that their companies handled themselves appropriately, while acknowledging some mistakes.
And both are believed to have reached broad settlement terms with the government. JPMorgan has tentatively agreed to pay $13 billion to resolve the mortgage bond investigations, although a criminal investigation led by prosecutors in California remains open. The $13 billion was negotiated between JPMorgan Chief Executive Officer Jamie Dimon, company General Counsel Stephen Cutler, and U.S. Attorney General Eric Holder; it would be the largest fine ever paid by a company to the U.S. government.
In SAC’s case, the company is believed to have reached the broad outlines of a settlement that would have it pay approximately $1.2 billion—not including $616 million pledged to the SEC earlier this year—to resolve a criminal indictment brought against the firm by Manhattan U.S. Attorney Preet Bharara. SAC’s funds would plead guilty to securities violations and immediately lose their licenses as registered investment advisers. The firm would then have the option of winding down its trading operation or transforming itself into a family office that manages only Cohen’s personal wealth.
The settlements will be historic and are certain to generate splashy headlines. Does it make sense to announce a big deal the moment the papers have been signed? Is Friday the best day for maximum impact? Is it better to go first or second? Both Holder and Bharara are likely struggling with such calculations.
One thing is clear: Halloween seems an inauspicious day to break the news, given that a good proportion of the attorneys involved may want to go trick-or-treating with their toddlers. That leaves next week.