05/03/2013 02:54 pm ET

JPMorgan Chase Regulatory Troubles Now Even More Troubling, But When Will Dimon Suffer?

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JPMorgan Chase's many regulatory troubles are once again hurting the bank's stock. At some point you have to ask, when do they hurt management, too?

Shares of JPMorgan, the biggest U.S. bank by assets, fell nearly 2 percent on Friday, even as other bank stocks and the broader market rose sharply on news of better-than-expected job growth. Who ever knows why stock traders do what they do, but they were at least partly reacting to a brutal New York Times report warning that the bank's recent era of bad feelings with its regulators was far from over.

The bank is in deeper trouble with the Federal Energy Regulatory Commission than we previously realized, according to the NYT. The newspaper got a copy of a private FERC report accusing JPMorgan of manipulating energy markets, Enron-like, in California and Michigan. It also accuses a legendary old hand at JPMorgan, Blythe Masters, head of global commodities at the bank, of lying under oath about her knowledge of the manipulation.

Masters, 44, is perhaps best known as the math wizard who came up with the idea of the credit default swap, the derivative that launched a thousand bailouts during the financial crisis.

The bank, in a statement to the NYT, denied that Masters lied to investigators and said it will "vigorously defend" itself against the charges.

But that's only the start of JPMorgan's problems. Its chief regulator, the Office of the Comptroller of the Currency, is considering taking action against the bank over its collection of credit-card debt and allegations that it failed to warn regulators of suspicions about Ponzi-scheme maestro Bernie Madoff, the NYT writes. The OCC has already cut its rating for the bank's management, to "needs improvement."

That rating cut came after the bank's "London Whale" debacle, in which a trader in the supposedly staid chief investment office managed to blow $6 billion on -- wait for it -- those same credit default swaps that Blythe Masters dreamed up 20 years ago.

The OCC rating cut also followed several incidents in which bank officials, including CEO Jamie Dimon, belittled and defied OCC officials, according to a recent Senate report on the London Whale scandal. (The bank has denied being mean to the OCC.)

And this is not to mention the bank's involvement in the Libor scandal, the collapse of the brokerage firm MF Global, lax money-laundering oversight and not-quite-up-to-snuff capital plan. To name just a few internal control issues.

So far all of this has seemed to have little effect on Dimon, who guided the bank through the financial crisis and has ever since been a loud, whiny voice on behalf of the banking sector, warning against the horrors of too much bank regulation. He has offered mea culpas and vowed to get the bank back on the straight and narrow. The bank's stock swooned briefly when the London Whale debacle flared up, but rebounded as the bank posted record profits.

But we could get a measure of shareholder patience, or the lack thereof, in just a few weeks. At the bank's next annual meeting, scheduled for May 21 in Tampa, shareholders will get a chance to vote on a proposal by several big pension funds on whether to strip from Dimon the chairmanship of the bank's board. Once such an idea seemed like a fairly certain "no" vote. Warren Buffett, for one, thinks Dimon should keep both jobs.

The longer these regulatory headaches last, and the more they hurt the stock price, the harder shareholders will think about making Dimon pay.



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