Published May 12, 2012  Associated Press

“JPMorgan Chase faces intense criticism for claiming that a surprise $2 billion loss by one of its trading groups was the result of a sloppy but well-intentioned strategy to manage financial risk.

More than three years after the financial industry almost collapsed, the colossal misfire was cited as proof that big banks still do not understand the threats posed by their own speculation.

“It just shows they can’t manage risk — and if JPMorgan can’t, no one can,” Simon Johnson, the former chief economist for the International Monetary Fund, said Friday….”

“”This is not a hedge,” said Sen. Carl Levin, D-Mich., chair of a subcommittee that investigated the crisis. He said the trades were instead a “major bet” on the direction of the economy, as published reports suggested.

On Friday, Dimon told NBC News, for an interview airing Sunday on “Meet the Press,” that he did not know whether JPMorgan had broken any laws or regulatory rules. He said the bank was “totally open” to regulators.

The head of the Securities and Exchange Commission, Mary Schapiro, told reporters that the agency was focused on the JPMorgan loss but declined to comment further….”

“Within minutes after trading began on Wall Street, JPMorgan stock had lost almost 10 percent, wiping out about $15 billion in market value. It closed down 9.3 percent.

Fitch Ratings downgraded the bank’s credit rating by one notch, while Standard & Poor’s cut its outlook JPMorgan to “negative,” indicating a credit-rating downgrade could follow….”

“Nancy Bush, a longtime bank analyst at NAB Research and a contributing editor at SNL Financial, said the trades probably crossed that line because they were making money for JPMorgan.

“So they made money on hedges and then they hedged some more,” she said. “At some point it goes from being a hedge to being a moneymaker.”

JPMorgan was seen as a savior of weaker banks during the financial crisis and the only big bank to escape relatively unscathed. His reputation enhanced, Dimon, 56, has been emboldened to challenge efforts to toughen regulation.

In an interview with the Fox Business Network earlier this year, Dimon said that Paul Volcker, the former Federal Reserve chairman for whom the rule is named “doesn’t understand capital markets.”

Last year, he questioned the current Fed chair, Ben Bernanke, about the rules and said they might be delaying the recovering of the financial system and the broader economy.

“Has anyone bothered to study the cumulative effect of all these things?” he asked.

Dimon, who grew up in the Queens borough of New York and was groomed by the former Citigroup chief executive Sanford Weill, has also chafed against Occupy Wall Street protesters.

“Acting like everyone who’s been successful is bad and that everyone who is rich is bad — I just don’t get it,” he said at a conference earlier this year.

On Thursday, at about the same time he was breaking news of the $2 billion loss to Wall Street, Dimon sent an email to JPMorgan’s 270,000 worldwide employees assuring them that the company was “very strong.”

http://www.foxnews.com/us/2012/05/12/jp-morgan-2b-loss-renews-calls-for-stricter-financial-oversight/

“Wednesday, in a story from Reuters, came revelations that Aubrey McClendon, chief executive of Chesapeake Energy, had borrowed more than $1.1 billion against his personal stakes in oil and gas wells controlled by Chesapeake.

The size of the loans is pretty shocking (equal to more than one-tenth of Chesapeake’s total long-term debt), as is the clear and undeniable implication that McClendon is up to his eyeballs in conflicts that should lead every shareholder to question whether he has their interests or his own at heart. At one point on Wednesday investors drove down Chesapeake shares more than 10%. They closed down 5.5% on Wednesday, and have fallen by half since last August, hammered by debt loads and low natural gas prices

Here is the core of what is wrong with McClendon’s massive borrowing: Chesapeake is severely capital constrained (a result of high debt loads, reckless spending on ever more shale gas acreage and rock bottom natural gas prices) to the point that the company is trying to sell billions of dollars in assets this year to make ends meet. At the same time this is going on, McClendon has been competing directly against his own company for access to the capital markets in order to shore up his own finances — without telling shareholders the extent of his financings.

Doesn’t he owe it to shareholders to put their capital needs ahead of his own? Shouldn’t shareholders know that the ceo of their company has found someone to lend him $1.1 billion against assets that they co-own with him? That’s an amount of money that is certainly material to a company with an equity market cap of $12 billion and debt load of $10 billion. This is an obvious conflict of interest, insufficiently disclosed, that should not be allowed to continue.

(Chesapeake, in its response to the revelations, insists that there’s no conflict, that the amounts of the loans are not material, that the company knew about the size of the loans, but that the board of directors neither approved the loans nor has any business overseeing McClendon’s personal transactions covering his personal assets.)

Key to these loans is a sweetheart perk through which Chesapeake gives McClendon the opportunity to buy a 2.5% stake in every well the company drills (more than 2,000 this year). The Reuters story revealed that McClendon has borrowed heavily against these well stakes, gleaning cash from investors including EIG Global Energy Holdings, a private equity group that helped finance Chesapeake’s recent foray into Ohio’s Utica Shale. EIG’s deal with McClendon guaranteed them 100% of the revenues from McClendon’s well stakes until EIG had achieved a 13% return on investment. What’s more,according to Reuters, after the principal is paid off, EIG gets a 42% share of production from those wells, in perpetuity.

Now sharp-penciled analysts and investors have known for years that McClendon has borrowed against or sold portions of his stakes in Chesapeake wells — there’s some blanket disclosures in the company’s proxy filings and after McClendon’s infamous 2008 financial meltdown the company agreed to front the CEO $75 million to pay his share of drilling costs. McClendon has raised millions more by selling interests in his wells to a variety of investors through vehicles known as volumetric production payments, or VPPs. But $1.1 billion is in a different ballpark.

And it’s not just this $1.1 billion in loans. I’ve also learned today that McClendon has entered into two private transactions called volumetric production payments, whereby he has collected more than $130 million upfront from banks and investors in return for delivering to them set amounts of gas from his wells for a certain period of time (in effect he’s sold them a temporary overriding interest). Though Chesapeake’s most recent proxy filing mentions that McClendon has done such VPPs, the deals were not announced at the time they were done, nor were the dollar values.

So how does this happen at all? McClendon has one of the best perks in the entire oil and gas industry. Every time Chesapeake drills a well across its millions of acres, McClendon gets a 2.5% stake in it. He has to pay a pro-rated share of the capital costs and expenses that go into those wells, but after that, 2.5% of the oil and gas coming out of that well, and 2.5% of the reserves down in the ground are his, free and clear.

Chesapeake and McClendon insist that this Founders Well Participation Program aligns his interests with those of shareholders. Their reasoning is that because McClendon has a piece of each well, he’ll want to make decisions that profit himself, not just the company. Sounds plausible, but it doesn’t hold up.

The simple truth is that McClendon’s well participation perk does not align his interests with those of shareholders. As I detailed in my cover story on McClendon last fall, at the heart of Chesapeake’s operation is the land machine, which scoops up promising acreage across America, paying billions to secure the rights to drill. Much of that land turns out to have oil and gas; some doesn’t. When land turns out not to be worth drilling, the millions sunk into accumulating it is lost.

Chesapeake only drills wells on land where it has a good belief that there’s oil and gas to be had. It drills more wells in the choicest parts of a field. McClendon only participates in the good acreage; he doesn’t get docked for the bad acreage Chesapeake has no use for. Thus he is absolutely guaranteed to get better opportunities and better returns than Chesapeake’s shareholders. He shares in the boons and avoids the banes…….”

http://www.forbes.com/sites/christopherhelman/2012/04/19/chesapeake-mcclendons-big-borrowing/

All photos from Forbes.com

Chesapeake’s Desperate Plan For Tough Times Christopher Helman Forbes Staff

Billionaire Wildcatter, Risk Addict Aubrey McClendon Has Bet It All On Shale Christopher Helman Forbes Staff

In His Own Words: Aubrey McClendon Answers Our 25 Questions Christopher Helman Forbes Staff

Chesapeake Lawsuits Pit Billionaire Against Billionaire

“Some Wells Fargo shareholders were arrested Tuesday after disrupting the annual meeting in San Francisco. They had bought shares specifically so they could attend the meeting and disrupt the proceedings. Their protest is part of a new strategy by the Occupy movement and housing activists to target corporations……”

The demonstration – led by the Occupy Movement – was over the bank’s foreclosure and lending policies. Hundreds of protesters bought bank shares so they could attend the meeting and disrupt proceedings…..”

“AARTI SHAHANI, BYLINE: Outside the California Merchants Exchange Building, people holding certificates of Wells Fargo stock lined up in front of police barricades.

ADAM KRUEGER: We are legal shareholders. We’re not letting any other shareholders in until they let us in.

SHAHANI: Dozens of shareholders and proxies were denied entry, Adam Krueger included. An organizer with the 99 Percent Shareholder Spring, he says Wells Fargo, the country’s largest mortgage servicer, isn’t doing enough to solve the housing crisis.

KRUEGER: We demand: Stop the foreclosure factory, reduce principal where – to help keep families in their homes, and pay your fair share.

SHAHANI: Inside the meeting, recording wasn’t allowed. CEO John Stumpf was interrupted repeatedly by protesters. Security escorted them out. The meeting ended in just 37 minutes. Not a single shareholder – protester or otherwise – raised their hand during Q&A.”

http://www.npr.org/2012/04/25/151339994/activists-disrupt-wells-fargo-shareholders-meeting

“BlackBerry maker Research In Motion has hired law firm Milbank, Tweed, Hadley & McCloy LLP to work out a restructuring plan that could include selling assets, seeking joint ventures or licensing patents, people briefed on the matter said.

As part of the struggling Canadian smartphone maker’s strategic review, the RIM board is discussing ways to boost revenue from its new BlackBerry 10 operating system and possibly opening up its proprietary network, the sources said.

At one point, RIM was hoping to add as much as $4 billion in revenue from deals with major telecom carriers, sources said.

“This is a very mature strategy and RIM was very far down the road with a lot of those discussions with carriers,” one of the sources added.”

http://news.yahoo.com/exclusive-blackberry-maker-hires-law-firm-restructuring-030021061–sector.html

“At its annual meeting Tuesday, 55% of the bank’s shareholders voted against the pay packages granted to Citigroup’s top executives, including CEO Vikram Pandit’s $15 million for last year and $10 million retention pay….”

“”This vote is historic,” said Eleanor Bloxham, CEO of The Value Alliance, a board advisory firm. “None of the Wall Street firms have received this kind of a review yet.”

Wall Street’s massive compensation packages have raised the ire of shareholders for years, especially when they appear to have little relation to the performance of specific executives.

Bonuses became a flashpoint of public outrage after the 2008 financial meltdown, which was caused in large part by those same Wall Street firms.

Nonetheless, compensation on Wall Street has remained high, even after a taxpayer-funded bailout of the industry and the Great Recession that followed and left one in 10 Americans unemployed.

Until Tuesday, shareholders haven’t voted in large enough numbers against executive pay packages to make a difference. Under the Dodd-Frank financial overhaul law, major U.S. companies are required to allow shareholders to have a “say on pay” vote at least every three years. The votes are not binding.

Besides Citi so far this year, only two companies — International Game Technology (IGT) and Actuant (ATU)— have failed to muster shareholder approval of pay practices. Last year, 41 companies failed.

For Citigroup’s CEO Vikram Pandit, the lost vote at the annual meeting comes at a bad time. Last month the bank’s chief regulator the Federal Reserve dealt Citi a huge setback by barring the company from paying a higher dividend, saying the bank wasn’t financially strong enough. The Fed’s decision came soon after Pandit had been promising to raise dividends.

Pandit’s large pay package for 2011 included $14.8 million in total compensation, up from his token $1 in 2010.

Pandit was also awarded $10 million in retention pay, which vests after 2013. Paid as an incentive for Pandit to stay as CEO, Citi’s compensation committee will assess him not on financial performance, but on non-quantifiable measures such as talent management, organizational culture and risk management.

“Citigroup is one of most egregious example of disconnect between incentives of top management and value creation of shareholders,” said Mike Mayo, bank analyst at brokerage firm CLSA and author of the book “Exile on Wall Street.”

“The owners of the big banks, namely the shareholders, are finally taking a greater amount of responsibility by speaking up.”

The influential corporate governance firm ISS was particularly concerned about the fact that Pandit’s retention pay was not linked to any financial metrics. ISS had recommended that investors vote against Citi’s compensation package.

ISS also said in a report that Pandit’s pay was higher relative to the performance of its peer group and its total shareholder returns. Since Pandit became CEO in December 2007 through the end of 2011, Citigroup stock was down 90%.

Citigroup nearly collapsed during the financial crisis and was rescued by $45 billion in bailout money from the government in late 2008. In February 2009, Pandit said he would accept a salary of $1 until the bank was able to turn a profit. The bank has reported profits for two consecutive years now. However, shareholders didn’t seem to agree that it was time to handsomely reward management yet.”….”

http://www.usatoday.com/money/companies/management/story/2012-04-18/citigroup-executive-pay-shareholders/54377436/1

“GM CEO Daniel Akerson’s pay will be frozen for another year.

NEW YORK (CNNMoney) — The Treasury Department announced Friday that it has frozen the pay of top executives at the three firms still on the hook for “exceptional assistance” from TARP…”

“The special inspector was given oversight of top salaries at bailed-out firms as public outrage grew over how taxpayer dollars were being used during the financial crisis.

For 2012, each CEO’s pay will be frozen at last year’s levels, and cash compensation is limited. The bulk of CEO earnings will be tied to performance, in the form of stock….”

“GM reported a record annual profit attributed to common shareholders of $7.6 billion in February. Meanwhile, the company’s stock has risen 22% since the start of 2012.

The direct pay of lower-level executives at each firm — the five senior executives, plus the next 20 highest earners — will actually be cut 10% on average from 2011 levels.

Still, the executives will earn quite a bit of dough. The top employee at GM — who is not named, but presumably is CEO Daniel Akerson — will bring home $9 million.

The lowest paid executive on GM’s list will earn $1.3 million….”

http://money.cnn.com/2012/04/06/news/economy/treasury-gm-pay/index.htm

I’m David Greene. This campaign season, corporations have been spending and spending to back candidates. Now one important group is demanding to know where all that money is going. We’re talking about the company’s shareholders.

A new report says that as publicly held corporations are gathering for their annual meetings, shareholders are asking a lot of questions about political spending, as NPR’s Peter Overby reports.

PETER OVERBY, BYLINE: Ever since the Supreme Court handed down the Citizens United ruling in 2010, giving corporations and unions the right to spend freely in political campaigns, groups of shareholder activists have been campaigning for disclosure of corporate political money.

This year, about one-third of all the shareholder resolutions are promoting disclosure.

HEIDI WELSH: It’s the issue that ate(ph) proxy season.

OVERBY: Heidi Welsh is director of the Sustainable Investments Institute. It monitors shareholder proposals on social and environmental issues. Welsh co-wrote the report being released today.

WELSH: Usually investor activists want companies to do something on climate change. They want more information about corporate supply chains. But political spending has just expanded exponentially in the last three years.

OVERBY: The movement got an endorsement last week from one of the five members of the Securities and Exchange Commission. Right now there is no requirement for corporations to reveal their political spending.

Commissioner Luis Aguilar wants that to change. He was speaking at a conference sponsored by the Practicing Law Institute.

LUIS AGUILAR: Requiring transparency for corporate political expenditures cannot wait a decade. It is the commission’s responsibility to rectify this gap and to ensure that investors are not left in the dark while their money is used without their knowledge or consent.

OVERBY: Of course, most corporations oppose this idea, and so do advocates of deregulating the political money system.

ALLEN DICKERSON: We’ve recognized for decades that disclosing information that is not economically material can be misleading.

OVERBY: That’s Allen Dickerson, legal director of the Center for Competitive Politics. He says that disclosure, whether by regulation or by shareholder initiative, is just a bad idea.

DICKERSON: In practice, what this will do is require any corporation that wants to use its constitutional rights to submit to a highly politicized, highly partisan debate every year on how they go about doing it.

OVERBY: But some proponents of disclosure say it’s their duty to pursue it. Thomas DiNapoli is comptroller of New York State, which puts him in charge of a pension fund with $140 billion in assets.

THOMAS DINAPOLI: I think this is an area where it is very much a fiduciary responsibility, very much tied to the bottom line, to see how the corporate dollars of companies you’re invested with, how that money is being spent.

OVERBY: Last week, DiNapoli said he’s reached disclosure agreements with three corporations – Safeway, Pacific Gas & Electric, and Sempra Energy.

And while there isn’t exactly a trend, there is a steady campaign for corporate disclosure. Nearly 20 percent of the S&P 500 companies have signed on – the result of efforts by a group called the Center for Political Accountability.

Bruce Freed is president of the Center. He says corporate managers need to understand the risks involved in playing politics.

BRUCE FREED: Once they give to a superPAC or to a (c)(4), they’re exposed to all of the risks and all of the blowback. And they don’t know, you know, what the consequences could be.

OVERBY: He’s referring here to 501(c)(4) advocacy groups. Unlike superPACs, they get to keep their donors secret, although the names sometimes leak out anyway. And if the disclosure advocates have a good proxy season, more corporations themselves could be agreeing to draw back the curtain.

Peter Overby, NPR News, Washington.

http://www.npr.org/2012/02/28/147548228/shareholders-want-political-spending-transparency

U.S. Supreme Court will hear arguments today in two human rights cases. Both of them involve torture and brutal murders. But the case that has the corporate world on edge is a lawsuit against Shell Oil. The company is accused of aiding and abetting the Nigerian government in committing atrocities. NPR legal affairs correspondent Nina Totenberg reports.

NINA TOTENBERG, BYLINE: The case was brought by 12 Nigerians, all granted political asylum in the United States. All are from the Ogoni region of Nigeria, where Shell Oil has for decades conducted oil exploration. In the mid-1990s, local religious student and civic leaders began demonstrating peacefully against Shell, protesting that their farmland was being ruined by oil spills and that Shell contributed nothing for the clean-up, for environmental protection or for the local economy. Soon the leadership was being rounded up, tortured, and even killed. Those who survived fled, including Charles Wiwa, who says that after he led a rally in his home village, he was picked up and taken to an open air market where he was clubbed and horse-whipped by 18 soldiers before a crowd of thousands.

CHARLES WIWA: Horsewhipping me, clubbing me, for a really long time, for about two hours. Because the beating took a very long time, my siblings and our mother came there and they were all crying helplessly.

TOTENBERG: There were more beatings, he says, and eventually he was charged with unlawful assembly. Released on bail, he says there were two attempts to abduct him.

WIWA: When it was obvious that my life was at risk, I fled Nigeria.

TOTENBERG: For the past 16 years, he’s been the U.S. Now living in Chicago and working as an export consultant, he’s among the Ogoni refugees here who have doggedly pursued Shell, contending the oil company works hand-in-glove with the Nigerian military to brutally suppress any opposition to the way the company operates in Nigeria. Among those bringing the lawsuit is a Seventh Day Adventist bishop and the widow of a local leader who was summarily executed. Their suit is based on the Alien Tort Statute, a law enacted in 1789 by the first U.S. Congress and aimed mainly at pirates. The statute says that U.S. trial courts can hear civil damage suits brought by a foreign national for wrongs committed in violation of the law of nations or a treaty of the United States. The statute remained largely unused until 1980, when victims of human rights abuses began using it against foreign individuals and corporations.

In 2004, the Supreme Court, by a six-to-three vote, upheld the use of the statute against an individual, but only for a limited category of crimes – torture, genocide and crimes against humanity. The court said that in modern times the torturer has become like the pirate and the slave trader of earlier times, an enemy of all mankind. Unresolved, however, was who else could be sued. Can it be more than an individual? Can complicit corporations be held liable too? That is a question presented in this case, whether victims can sue corporations for aiding and abetting alleged torture, murder and genocide. Lawyers representing the victims maintain that historically there is a quid pro quo for corporate status. In exchange for the many benefits of incorporation, including limited liability, corporations are held responsible for the actions of their employees, known in legalese as their agents. Lawyer Paul Hoffman…

PAUL HOFFMAN: All that we’re saying in this case is that when a corporation contributes to genocide or crimes against humanity, that they should be held liable in court in the same way they would be held liable if one of their agents is engaged in an automobile accident that injures somebody.

TOTENBERG: Shell Oil counters that corporations cannot be sued in the United States under the Alien Tort Statute because international law doesn’t recognize corporate liability for human rights crimes. Shell declined to comment for this story, but former State Department counsel John Bellinger, who filed a brief on behalf of a half dozen multinational corporations, explains the corporation’s position.

JOHN BELLINGER: They believe that international law does not impose liability on corporations, that international law binds nations and individuals, but not corporations.

TOTENBERG: Supporting Shell in this argument are more than two dozen multinational corporations, business groups, and even several countries. They say that if the Supreme Court rules that corporations can be sued under the Alien Tort Statute, it will exacerbate what they characterize as the existing flood of litigation.

http://www.npr.org/2012/02/28/147507940/human-rights-victims-seek-remedy-at-high-court

http://www.npr.org/templates/transcript/transcript.php?storyId=147507940