JPMorgan to pay $135m for improper handling of ADRs

The JP Morgan Chase & Co. headquarters, The JP Morgan Chase Tower in Park Avenue, Midtown, Manhattan, New York. JPMorgan Chase & Co. is an American multinational banking and financial services holding company. It is the largest bank in the United States. Manhattan, New York, USA. 27th January 2014. Photo Tim Clayton (Photo by Tim Clayton/Corbis via Getty Images)

Washington: JPMorgan Chase & Co will pay over $135 million to settle charges it mishandled so-called “pre-released” American Depositary Receipts (ADRS), the Securities and Exchange Commission announced today.

The regulator said the investment bank improperly provided ADRs, which are US securities that represent foreign shares of foreign companies, to brokers even though the brokers and their clients lacked the corresponding foreign shares. The bank did not admit or deny the SEC’s findings, but agreed to pay back ill-gotten gains and additional penalties, the SEC said. The past month has revealed the brutal new reality confronting the chairmen of Australia’s major banks. No longer are they seen as august and revered figures, whose lofty utterances are stamped with unquestionable authority. Instead, we’ve witnessed the chairmen of the Commonwealth Bank and the National Australia Bank undergo a ruthless interrogation before the banking royal commission, while the chairmen of three banks – Westpac, NAB and ANZ Bank – suffered a bruising and public humiliation at their annual general meetings, as major institutional shareholders expressed their fury at the banks’ remuneration reports.

Westpac chairman Lindsay Maxsted was stoic at the bank’s annual meeting in Perth, as shareholders delivered a shocking 64.2 per cent vote against the board’s decision to make only modest cuts to the short-term bonuses received by senior executives. Having seen the treatment meted out to Westpac, ANZ chairman David Gonski was no doubt psychologically prepared for the 33.8 per cent vote against his bank’s remuneration report.

But shareholders saved their biggest drubbing for the NAB, delivering a staggering 88.1 per cent vote against the bank’s remuneration report. This left the bank’s chairman, Ken Henry, with little option but to concede the bank’s attempt to reshape its executive remuneration had failed. “We tried, but we got it wrong. We are listening to you. We will try again,” a chastened Henry told shareholders.

This shareholder mutiny means that three of the country’s four largest banks have now suffered a first “strike” – a vote of more than 25 per cent against its remuneration report. A second strike next year would trigger a further vote on whether to spill the board and force all directors to stand for re-election to the board.

The threat from bank shareholders is clear: either bank directors start properly exercising their authority over the payment of executive bonuses, or they risk losing their lucrative board seats. Most observers agree the Hayne royal commission has helped ferment this unprecedented investor insurrection. That’s because it confirmed the long-standing suspicion of many major institutional shareholders that bank boards have failed to use the bonus assessment process in the way it is intended to be used – that is, to deliver meaningful feedback to senior executives about their performance, by rewarding those who have performed strongl, and penalising those who have performed poorly. Instead, bank boards routinely and indiscriminately lavished multimillion-dollar bonuses on senior bank executives while paying scant attention to the enormous reputational damage caused by their misconduct.