U.S. Deal With JPMorgan Spurred by a Phone Call

At a museum on Fifth Avenue, in a sparkling reception hall overlooking Central Park, Jamie Dimon convened his top executives and their spouses last month for the Wall Street equivalent of a pep rally.

“I’m proud of the company,” Mr. Dimon, the chief executive of JPMorgan Chase, said at the party, held at the Museum of the City of New York, a mansion with a marble staircase and French doors. According to people who attended, Mr. Dimon said, “We will get through all of this,” referring to the legal and regulatory woes dogging the nation’s biggest bank.

The next week, Mr. Dimon aimed to put one of those woes behind him.

On Sept. 24, four hours before the Justice Department was planning to hold a news conference to announce civil charges against the bank over its sale of troubled mortgage investments, Mr. Dimon personally called one of Attorney General Eric H. Holder Jr.’s top lieutenants to reopen settlement talks, people briefed on the talks said. The rare outreach from a Wall Street C.E.O. scuttled the news conference and set in motion weeks of negotiations that have culminated in a tentative $13 billion deal, according to the people briefed on the talks.

An account of the negotiations, based on interviews with these people, pulls back a curtain on the private wrangling to illuminate how the bank and the government managed to negotiate what would be a record deal. It also sheds new light on the hands-on role that Mr. Dimon and Mr. Holder played in the talks. And it highlights how Mr. Dimon has so far maintained the support of the bank’s board when other Wall Street chiefs were derailed by the financial crisis.

Much of the deal came down to dollars and cents. Mr. Dimon, the people said, signaled during that Sept. 24 call that he was willing to increase JPMorgan’s offer to settle an array of state and federal investigations into the bank’s sale of troubled mortgage securities before the financial crisis. The government, these people said, had already balked at the bank’s two initial offers: $1 billion and $3 billion.

And so that same week, Mr. Dimon traveled to the Justice Department in Washington for a meeting with Mr. Holder that underscored how expensive the healing process had become. At the meeting, the people briefed on the talks said, JPMorgan executives raised the offer to $11 billion, $4 billion of which would serve as relief to struggling homeowners.

But Mr. Holder wanted more money to resolve the civil cases, the people said. And despite the bank’s requests, he refused to provide JPMorgan a so-called nonprosecution agreement that would halt an investigation from prosecutors in California, who were scrutinizing the bank’s mortgage securities. Instead, the people said, he informed Mr. Dimon that the Justice Department wanted JPMorgan to plead guilty to a criminal charge in that case, an unusual show of force against a Wall Street bank.

While they were unable to strike a deal that day, Mr. Dimon and Mr. Holder kept in close touch, talking five times in the last two weeks. Late Friday, on the last of those calls, they finally reached the tentative deal: $13 billion and no promise of dropping the criminal investigation.

The deal, which could still fall apart over issues like how much wrongdoing the bank would admit, would be a record accord for the Justice Department. A single corporation has never before paid this much to settle.

The deal might also embolden the Justice Department and set a precedent for the agency’s investigations of Wall Street. Using the JPMorgan case as a template, and relying on a law that extends the legal deadline for filing certain financial fraud cases to 10 years from five, the Justice Department is planning to take action against other big banks suspected of selling troubled mortgage securities.

For JPMorgan, once known as Washington’s favorite bank, the deal would be a stunning reversal of fortune.

Complicating matters for the bank, Mr. Dimon is inextricably linked to the settlement. With the government, he assumed the role of chief negotiator. And at the bank, as illustrated at the museum gathering last month, he remains its chief cheerleader.

He has embraced the dual roles, and the mantle of peacemaker, as the bank faces scrutiny from across the government. At least seven federal agencies, several state regulators and two foreign countries are investigating the bank. The multifront campaign includes everything from a $6 billion trading loss in London last year to the hiring of well-connected employees in China.

The mortgage case presented the greatest test. Not only are several state and federal agencies involved, but the cases stem from a politically charged issue at the center of the financial crisis: the mortgage bubble.

When credit flowed freely in the run-up to the crisis, banks routinely bundled subprime and other risky loans into securities that they sold to investors. When homeowners fell into foreclosure and the investments soured, it caused billions of dollars in losses for the investors. In turn, government authorities began to question whether the banks properly warned of the risks.

Banks have countered that the risks were fully disclosed and that the investors, including pension funds and other institutions, were sophisticated entities.

Some defense lawyers also question whether the government is going too far. A $13 billion penalty would be more than half of JPMorgan’s profit last year. And some of the mortgage securities in question are not JPMorgan’s. Rather, the bank inherited the liabilities when it bought Bear Stearns and Washington Mutual in 2008, at the height of the financial crisis.

Even now, a significant obstacle stands in the way of a deal: whether JPMorgan will admit to all of the improper actions cited by the Justice Department. Banks are typically loath to acknowledge wrongdoing, fearing it could expose them to shareholder lawsuits.

A spokesman for JPMorgan declined to comment. A Justice Department spokeswoman did not return a request for comment.

The Justice Department’s negotiations with JPMorgan began in earnest this summer. In July, prosecutors from the civil division of the United States attorney’s office in Sacramento made a presentation to JPMorgan that outlined the case against the bank.

Tony West, the associate attorney general, then had a meeting with the bank in his conference room at the Justice Department in Washington. It was at that meeting in July that the talks broadened to include other mortgage-related cases.

In addition to the civil and criminal cases in Sacramento, which focused on the bank’s own mortgage securities, other cases zeroed in on securities sold by Bear Stearns and Washington Mutual. The Justice Department’s civil division had an inquiry into Bear Stearns, prosecutors in Pennsylvania were scrutinizing deals from Washington Mutual and New York’s attorney general had already filed a lawsuit involving Bear Stearns.

Then, about the time of another meeting in early August, JPMorgan asked to include a lawsuit from the Federal Housing Finance Agency. The agency, which sued JPMorgan over loans the bank and Bear Stearns had sold to Fannie Mae and Freddie Mac, would go on to make up a big part of the $13 billion pact.

But at that point, one person briefed on the talks said, the bank was offering only $1 billion to settle. Another person said the $1 billion offer was not meant to include the F.H.F.A. case.

Either way, by mid-August, settlement talks had stalled somewhat. They were far apart on the monetary penalty, and JPMorgan continued to push for the Sacramento prosecutors to drop the criminal inquiry, a request the government resisted.

The criminal case was still at an early stage. But the prosecutors in Sacramento had all but finished their civil lawsuit against the bank. And so they informed the bank that a lawsuit was coming on Sept. 24.

In the lead-up to that deadline, JPMorgan’s lawyers raised the offer to $3 billion. They conveyed it to Mr. West, who became the central negotiator for the government. But Mr. Holder rejected the offer, telling colleagues it was still too low.

In the days that followed, the Justice Department quietly planned the news conference to announce the civil case.

Benjamin B. Wagner, the United States attorney in Sacramento whose investigation into the bank’s mortgage practices led to the charges, boarded a plane to Washington so he could attend a news conference the next day. And during a 45-minute meeting at the Justice Department, Mr. Holder gathered with top aides in his fifth-floor conference room to prepare for the news conference.

But at 8 a.m. on Sept. 24, just four hours before the scheduled news conference, Mr. West received a call from an unexpected source: Mr. Dimon.

“I think we should meet in person,” Mr. Dimon said, one person briefed on the call said.

The meeting took place in Mr. Holder’s conference room two days later. Mr. Dimon’s entourage included his general counsel, Stephen Cutler, and his outside counsel, H. Rodgin Cohen of Sullivan & Cromwell.

Progress was made. The bank had agreed to enhance the offer to $11 billion, including the $4 billion for homeowners. And both sides discussed how to deploy the relief, including through reductions in mortgage balances. But a deal had yet to emerge. The Justice Department still wanted more money. And it informed the bank that to resolve the criminal investigation in Sacramento, it should be pleading guilty to a criminal charge. The bank balked.

For days, little happened. The government shutdown complicated the talks, as many of the civil prosecutors in Sacramento were furloughed.

But Mr. Dimon kept negotiating. He had the first of five calls with Mr. Holder in early October. After the bank’s board met last week, Mr. Dimon again contacted Mr. Holder.

It was not until Friday that JPMorgan backed down from its demand that the criminal case go away. Rather than resolve that case now, JPMorgan decided to let it play out. One person close to the bank noted that bank lawyers were skeptical it would actually produce charges. If criminal charges arise, it could mean additional fines and a deal that requires an independent monitor to keep an eye on the bank.

On a final call that Friday night â€" Mr. Cutler, Mr. West, Mr. Holder and Mr. Dimon all joined the call â€" the C.E.O. asked, “What will it take to get this done?”

Mr. Holder informed him that the government would not accept less than $13 billion. And with that, they had a tentative deal.

Mr. Holder and Mr. Dimon left Mr. Cutler and Mr. West to hash out the nuances.

Despite Legal Tempests, Dimon Appears Solid as Ever Atop JPMorgan

To Wall Street, Jamie Dimon looks like the Teflon C.E.O.

Despite mounting legal problems at JPMorgan Chase, including a tentative $13 billion settlement which is expected to end several federal and state investigations into questionable mortgage practices, Mr. Dimon appears solidly ensconced atop the nation’s largest bank. On Sunday, several JPMorgan executives said, as they have for months, that the bank’s board remains firmly behind Mr. Dimon, who is both chairman and chief executive.

“The board has not flinched in their support for him,” said a person close to JPMorgan. Only last week, the head of the board audit committee, Laban P. Jackson Jr., publicly endorsed him at a conference. Mr. Dimon’s role in negotiating the new settlement, costly as it is, has only cemented the board’s support, the executives said.

To many ordinary Americans, such confidence might seem bewildering. After all, more than a half dozen Wall Street chiefs, including Charles O. Prince III at Citigroup and Kenneth D. Lewis at Bank of America, were ousted by the financial crisis.

The difference is that JPMorgan’s legal travails have not truly threatened the bank financially, the executive said. While other C.E.O.’s stumbled during the crisis, Mr. Dimon never did, emerging more powerful as his bank went on to report record profits. So far this year, even as its legal troubles have worsened, the bank’s share price has gained roughly 23 percent.

By the logic of Wall Street, putting the bank’s legal problems aside is seen as a victory for Mr. Dimon, even though those problems arose on his watch. The share price rose recently on news that JPMorgan would set aside $23 billion for its legal headaches.

Still, the latest developments have sent a chill through the bank, which, to some on Wall Street, at times seems to be driven by Mr. Dimon’s cult of personality. Whether he could maintain his grip on the bank should JPMorgan face criminal charges is uncertain, though such charges are unlikely. The Justice Department, while agreeing to settle civil claims, has refused to agree to a so-called nonprosecution agreement for its criminal investigation.

And even within JPMorgan questions have begun to emerge on whether Mr. Dimon would survive another shareholder referendum on his twin roles of chairman and chief. While he won handily last time, with nearly 70 percent of the vote, some question whether he could win again, especially if problems at the bank mushroom.

At the board level, Mr. Dimon continues to enjoy almost universal support, executives said. While directors are concerned over apparent breakdowns in compliance and controls that led to the multibillion-dollar “London whale” trading fiasco and other woes, for now they have not pinned blame on Mr. Dimon. And, at a meeting in September, in which the board discussed a series of problems, directors reiterated their support for Mr. Dimon’s approach with the government, according to people briefed on the meeting.

More compelling, these people say, is Mr. Dimon’s record for delivering where it counts: at the bottom line. This month, the bank reported its first quarterly loss ever under Mr. Dimon. Other than that misstep, it has thrived under his stewardship, producing three years of consecutive quarterly profits.

Of course, Mr. Dimon’s support among board members could be eroded, depending on how a spate of government investigations plays out. Federal authorities, for example, are currently investigating JPMorgan’s hiring practices in China. Separately, prosecutors and the F.B.I. in Manhattan are examining whether the bank failed to alert authorities to suspicions about Bernard L. Madoff‘s Ponzi scheme, acording to people briefed on the matter.

Mr. Dimon has a reputation as a charismatic, numbers-oriented executive, and in the past he has taken a relatively hard line on Washington’s attempts to strengthen regulation of Wall Street. But in recent weeks, in discussions with the Justice Department, he struck a more conciliatory tone, according to people briefed on the negotiations.

To further repair strained ties with regulators, Mr. Dimon and Mr. Jackson traveled to Washington earlier this month to meet with top officials from the Office of the Comptroller of the Currency, according to people briefed on the gathering. At the meeting, JPMorgan executives spoke with the regulators about issues related to the bank’s controls against money-laundering, after failures that threatened to allow tainted money to move through the bank’s vast network.

In his dealings with regulators, Mr. Dimon has opted for a gentler approach, refraining from the kind of brash pronouncements that have rankled government authorities in the past, including his vocal criticism of some efforts to write rules under the Dodd-Frank regulatory overhaul. He is more cautious, the people said, before making bold statements.

Among board members, people close to the bank said, there are a swirl of questions about why a bank with JPMorgan’s sophistication and scale would have such flawed risk and compliance controls. There is a percolating feeling among some directors, the people said, that the bank should have increased its risk operations and management sooner.

JPMorgan, according to these people, is now planning to spend roughly $4 billion and assign an extra 5,000 employees to help repair its risk and compliance operations. JPMorgan has also rejiggered its compliance reporting structure. Cynthia Armine, who came from Citigroup in 2011 and now heads compliance, will report directly to Matthew E. Zames, the chief operating officer.

Wealth Fund Cautions Against Costs Exacted by High-Speed Trading

Despite being one of the largest single investors in the world, Norway’s sovereign wealth fund rarely makes waves.

Now, though, the $750 billion fund is preparing to raise its voice on a sensitive topic: the increasing computerization of the stock markets and the costs it has imposed on big long-term investors.

Wall Street firms and exchanges have long said that the speed and competition in the markets has made trading cheaper for everyone. Mary Jo White, the chairwoman of the Securities and Exchange Commission, recently referred to the United States stock market as the “envy of the world.”

But the top trader at the Norwegian fund, Oyvind G. Schanke, said not enough was heard from long-term investors like the fund, which holds $110 billion in United States’ stocks, and the asset managers representing American retirement savers. For them, Mr. Schanke said, the benefits of the technological changes of the last few years are not nearly as clear, and the costs of the system are often left out of the discussion.

“The U.S. market has gone through a lot of changes and has become quite complicated â€" and this complexity of the market creates a lot of challenges for a large investor like us,” said Mr. Schanke, the global head of stock trading for the fund, Norges Bank Investment Management. The fund invests some of the country’s oil wealth for future public programs.

Compared with five years ago, he said, “We don’t see any evidence that it is cheaper for us to trade.”

Mr. Schanke said the debate had gone off track largely because most of the research had examined narrow metrics to determine whether things were improving.

The most popular way to gauge the cost of trading stocks is the so-called spread, the difference between the prices that investors are offering to buy and sell a stock at a given moment. Many studies have found that competition among high-speed traders has narrowed that gap, making it cheaper for investors to move in and out of stocks. Mr. Schanke said the spread had indeed diminished and that had helped reduce costs for small retail investors trading a few hundred shares with a discount broker. But retail investors are a small portion of total trading. For the large investors trading millions of shares, like the Norwegian fund, the spread is only a small part of the cost of trading. The much more significant cost comes when other traders spot a big investor coming and then push the price down or up, knowing the investor will have many more shares to buy or sell.

Mr. Schanke said that fragmentation of the markets had made that practice easier for high-speed traders, and that the cost of the so-called market impact was 5 to 10 times any other costs, he said.

“It has become much more a market trading for trading’s sake,” he said.

Mr. Schanke has a unique vantage point on the problem because his fund invests in markets around the world, allowing it to compare different systems. The fund owns about 1 percent of all American stocks and more than 3 percent of all European stocks. Mr. Schanke said that despite all the feverish innovation in the United States, the markets here were not superior to those in Europe, where there is less complexity.

The fund is planning to use its position to become more outspoken on the issues, particularly as Europe moves closer to the American model. It recently released a 28-page report detailing its concerns â€" and Mr. Schanke said the fund was planning to do more public studies and bring its concerns to regulators in Europe and the United States.

Several other big market players are also suggesting that regulators and industry players weigh a broader reconsideration of the market structure to protect confidence in the United States markets. Exchanges have been calling for rules that would make it harder for smaller platforms like dark pools. The banks that run the dark pools have pressed for an end to the rules that protect exchanges.

Regulators at the S.E.C. have resisted making significant reforms in recent years, but they are contemplating changes after several highly public technological breakdowns and concern about the dominant role played by high-speed trading firms, which now account for more than half of all trading.

At an industry event on market structure last Thursday, the acting director of trading and markets at the S.E.C., John Ramsay, talked about “the importance of questioning assumptions that have led to the system we have.”

“In looking at these questions, we are going to be open-minded and broad,” Mr. Ramsay said.

But many of the loudest voices in the debate disagree with the Norwegian fund’s assessment that investors have not realized any great benefits from the recent evolution of the market.

“This U.S. equity market continues to be the most efficient mechanism for pricing in the world,” Bill Baxter, the head of electronic trading for Fidelity Investments, said at the event on Thursday.

For his part, Mr. Schanke said many of the players arguing for the status quo were part of the enormous network of companies making money off the current structure and were not the investors actually holding the shares, or the companies issuing those shares. He said the current market had made it particularly hard to trade the shares of medium-size and smaller companies, the ones who most needed the markets to raise money.

“We should never forget why there is a market,” he said. “We seem to forget that in all the discussion about market structure.”

The Norwegian fund does not want to see a return to the 1990s, when stocks were still traded by humans on the floor of the New York Stock Exchange. According to the fund’s analysis, trading costs dropped sharply in the years before 2007 when trading first went electronic.

But many of the drastic changes in the markets have come about since 2007, when the S.E.C. passed a wide-ranging set of rules, the Regulation National Market System. Those rules encouraged the proliferation of new trading platforms. All the new platforms, in turn, gave an opening to high-speed traders, which used their speed to dart between exchanges, anticipating moves in prices. Mr. Schanke said it was those original rules that should be reconsidered.

“The regulations that were put in place have created a market that is too complex,” he said. “It would be beneficial to reduce the complexity in it.”

AT&T in $4.85 Billion Tower Deal With Crown Castle

AT&T agreed on Sunday to lease or sell 9,700 cellphone towers to Crown Castle International, a big wireless tower operator, for $4.85 billion in cash.

Under the terms of the deal, Crown Castle will buy the rights to run 9,100 towers for an average lease of 28 years, with the right to acquire the towers outright from AT&T in the future for about $4.2 billion.

Crown Castle will also buy about 600 towers outright.

In return, AT&T will lease network capacity from those towers for at least a decade, paying $1,900 a month per site, with rent rising by about 2 percent a year. It can add more capacity from the towers if necessary.

The transaction will give AT&T additional financial flexibility. Investors and analysts speculate that the company is considering striking more deals in the near future. This summer, AT&T agreed to buy Leap Wireless, a prepaid cellphone service provider, for $1.2 billion.

And the deal is the latest by Crown Castle, which operates cellphone towers in the country’s top 100 markets and in most of Australia.

AT&T said that it doesn’t expect any effect on its financial results from the deal. Crown Castle said that the deal would add slightly to its adjusted operating income for the 2014 fiscal year.

“This deal is good for AT&T and our shareholders,” Bill Hogg, an AT&T senior vice president for network planning and engineering, said in a statement. “This deal will let us monetize our towers while giving us the ability to add capacity as we need it. And we’ll get additional financial flexibility to continue to invest in our business, maintain a strong balance sheet and return value to our shareholders.”

Crown Castle was advised by the law firm Cravath, Swaine & Moore.