By Pam Martens and Russ Martens: November 4, 2019 ~
David Dayen of American Prospect has a must-read article. The headline and subhead read: “JPMorgan Gets Back Into the Electricity Business: An El Paso, Texas, electric utility is being purchased by an investment fund with deep, undisclosed ties to the big bank.”
Dayen is not buying into the idea that it’s an investment fund at JPMorgan that’s buying El Paso Electric, a publicly traded electric utility, but that the deal is simply being “laundered through an allegedly independent investment fund,” due to the fact that “48 executives of the investment fund are actually paid employees of JPMorgan….”
Why wouldn’t JPMorgan Chase want to admit that it plans to make an outright purchase of an electric utility company serving 429,000 customers in Texas and New Mexico?
For starters, the bank has been charged, and admitted to, three criminal felony counts within the past five years and is currently under a criminal probe for running a criminal enterprise out of its precious metals desk. And then there is their prior history ripping off electric customers.
Let’s start with the $410 million fine and restitution that a unit of JPMorgan Chase was forced to pay in 2013 by the Federal Energy Regulatory Commission (FERC) for ripping off electric customers in California and the Midwest. According to FERC, the JPMorgan energy unit was charging customers “as much as 80 times the prevailing power prices at certain hours of the day.” (See our report: The Missing Pieces in the Criminal Probe of JPMorgan’s Energy Trading.)
Also making JPMorgan Chase look like the last corporation in America that should own an electric utility is an email that turned up when the U.S. Senate’s Permanent Subcommittee on Investigations conducted a two-year investigation in 2013 and 2014 into Wall Street’s vast, secret ownership of physical commodities and related rigging of commodity markets.
The email was dated April 29, 2010 and was from Francis Dunleavy, then head of Principal Investing within the JPMorgan Commodities Group, to Rob Cauthen, a colleague. The email pertained to a prospective new hire and stated simply: “Please get him in ASAP.”
The man Dunleavy wanted to interview ASAP was John Howard Bartholomew, who had just obtained his law degree from George Washington University two years prior. But the law degree was not what had excited Dunleavy. It was the fact that Bartholomew had bragged in his resume that while working at a public utility in Southern California, he had “identified a flaw in the market mechanism” and knew how to “increase profits by 400%.” Bartholomew got the job. (See JPMorgan Rushed to Hire Trader Who Suggested on His Resume That He Knew How to Game Electric Markets.)
When the Senate’s Permanent Subcommittee on Investigations released its voluminous report in November 2014, it showed that Wall Street’s mega banks, often secretly through shell companies, had obtained ownership of a vast amount of the nation’s critical industrial commodities like oil, aluminum, copper, even uranium. The report described the mega banks’ holdings as “unprecedented in U.S. history.”
Even more startling, the report found that it was the U.S. central bank, the Federal Reserve, that had green-lighted these acquisitions. The report states:
“Without the complementary orders and letters issued by the Federal Reserve, many of those physical commodity activities would not otherwise have been permissible ‘financial’ activities under federal banking law. By issuing those complementary orders, the Federal Reserve directly facilitated the expansion of financial holding companies into new physical commodity activities.”
Federal law has encouraged a distinct separation of banking and commerce for more than a century in the U.S. because mega banks could favor their own commerce companies in the making of loans. They could also use insider information in commodities they own to have an unfair trading advantage. These mega banks also own commercial banks which hold Federally-insured deposits that are backstopped by the U.S. taxpayer. If one of their commercial properties experienced a catastrophic accident like a power plant explosion or massive oil tanker spill, it could force a U.S. taxpayer bailout of the bank.
The Senate report said this about the looming catastrophic risk from the banks’ secretive activities:
“While the likelihood of an actual catastrophe remained remote, those activities carried risks that banks normally avoided altogether. Goldman, for example, bought a uranium business that carried the risk of a nuclear incident, as well as open pit coal mines that carried potential risks of methane explosions, mining mishaps, and air and water pollution…Morgan Stanley owned and invested in extensive oil storage and transport facilities and a natural gas pipeline company which, together, carried risks of fire, pipeline ruptures, natural gas explosions, and oil spills. JPMorgan bought dozens of power plants whose risks included fire, explosions, and air and water pollution. Throughout most of their history, U.S. banks have not incurred those types of catastrophic event risks.”
The U.S. Senate report of 2014 also makes numerous references to a “2012 Summary Report” that it had obtained from the Federal Reserve Bank of New York – the unit of the Federal Reserve that is currently funneling $690 billion a week in revolving loans to Wall Street securities firms, with no authorization from Congress, for a liquidity crisis that has yet to be explained or defined to the American people.
The Senate report notes that this New York Fed report remains “sealed” – another travesty against the public’s right to know – but the Senate report includes some information from the summary findings it was allowed to see. These include the following, as we reported at the time:
Morgan Stanley held “operating leases on over 100 oil storage tank field[s] with 58 million barrels of storage capacity globally and 18 natural gas storage facilities in US and Europe.” Morgan Stanley also had “over 100 ships under time charters or voyages for movement of oil product, and was ranked 9th globally in shipping oil distillates in 2009.” The company also owned 6 domestic and international power plants.
JPMorgan had a “significant global oil storage portfolio (25 [million barrel] capacity) … along with 19 Natural Gas storage facilities on lease.” It also reported that JPMorgan had acquired “Henry [B]ath metals warehouse (LME certified base metals warehousing/storage worldwide),” and that JPMorgan’s “total base metal inventory was as high as $8 [billion]” during the first quarter of 2012.
Bank of America had “23 oil storage facilities and 54 natural gas facilities…leased for storage.”
Goldman Sachs had four tolling agreements and a wholly-owned subsidiary, Cogentrix, with ownership interests in over 30 power plants; owned “Metro Warehouse which controls 84 metal warehouse/storage facilities globally” and qualified as a London Metals Exchange storage provider; had acquired a Colombian coal mine valued at $204 million, which had also included associated rail transportation for the coal. The report also found that Goldman Sachs had conducted “a uranium trading business that engages in the trading of the underlying commodity.”
Following the 2014 Senate report, the banks were supposed to scale back their physical commodity holdings and commercial activities. Under Jerome Powell’s Fed, that does not appear to be the case since JPMorgan Chase is now directly tied to the purchase of El Paso Electric.