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FRAUD

Rogue JPMorgan trader arrested in Spain

Spanish police arrested on Tuesday a former JPMorgan Chase trader wanted by the United States on criminal charges in the massive "London Whale" fraud case.

Rogue JPMorgan trader arrested in Spain
The headquaters of JPMorgan Chase & Co. in Manhattan, New York City. Photo: Spencer Platt/Getty Images North America/AFP

Officers arrested Spanish national Javier Martín-Artajo Rueda on an international detention request issued by the United States for alleged fraud and tax crimes, police said in a statement.

After locating Martín-Artajo, Spanish police spoke to him and managed to get him to appear at a police station where he was arrested on Tuesday morning, police said, without giving further details.

"The detainee is suspected of being responsible for manipulating and inflating the value of positions on his firm's credit portfolio," the police statement said.

The suspect was taken to appear before an investigating judge in Madrid's National Court.

Martín-Artajo is accused of being a senior figure in the 2012 "London Whale" trading scandal involving $6.2 billion in trading losses at US banking giant JP Morgan.

US federal prosecutors filed criminal charges on August 14 against Martín-Artajo and Frenchman Julien Grout, alleging the two men kept false records on the trades, committed wire fraud and submitted false US securities filings.

The charges were the first criminal case to stem from last year's mammoth trading loss. The Securities and Exchange Commission also filed parallel civil charges against the two men alleging securities fraud.

A third ex-JPMorgan official involved in the trades, French national Bruno Iksil — originally identified as the "London Whale" responsible for the trades — was cleared of criminal responsibility after cooperating with prosecutors.

Martín-Artajo, 49, is a Spaniard who usually resides in London, while Grout, 35, resides in his native France.

According to US prosecutors, Martín-Artajo was the most senior of the three employees.

The US complaint documents how the London team allegedly falsified financial records after Martin-Artajo was pressured from higher-ups about losses in early 2012.

Martín-Artajo directed underlings to discount the losses and count positions in ways that departed from company practice of pricing assets at mid-market levels, according to the complaint.

It cites phone calls and emails from the Iksil, who is identified only as a "co-conspirator not named as a defendant."

Iksil is depicted in the complaints as a generally unwilling participant in the cover-up, urging Martín-Artajo to revise pricing practices to more accurately reflect losses and taking steps to document and highlight the growing gap between the division's reported and actual losses.

At one point, Martín-Artajo allegedly fought with Iksil after he reported in an email a single-day trading loss of $40 million. Martin-Artajo erupted at the document, saying putting the information in an email "just creates more tension", according to a recorded phone call.

As a result of the false records, JPMorgan in July 2012 restated losses from its corporate private equity division, which included the London trading operation, by $459 million.

The defendants each face a maximum sentence of 65 years in prison when all the criminal charges are combined, and in addition a fine of $5 million, or twice the gross gain or loss from the offences, whichever is greater.

Civil penalties in the SEC case include paying back ill-gotten gains and a fine.

The debacle led to senior bank resignations, slashed pay for JPMorgan chief executive Jamie Dimon and sparked a plethora of government probes.

The London whale case is one of several regulatory headaches still facing JPMorgan. The bank also faces probes on its sale of mortgage-backed securities, among other issues

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MONEY

Rampant branch closures and job cuts help Spain’s banks post huge earnings

Spain’s biggest banks this week reported huge profits in 2021 and cheered their return to recovery post-Covid, but ruthless cost-cutting in the form of thousands of layoffs, hundreds of branch closures and the removal of many ATMs have left customers in Spain suffering, in this latest example of ‘Capitalismo 2.0’. 

A man withdraws cash from a Santander branch in Madrid.
More than 3,500 Santander workers lost their jobs in Spain in 2021 and a further 2,000 more employees working for Santander across Europe were also laid off. Photo: PHILIPPE DESMAZES / AFP

Spanish banking giant Santander on Wednesday said it has bounced back from the pandemic as it returned to profit last year, beating analyst expectations and exceeding its pre-COVID earnings.

Likewise, Spain’s second-largest bank BBVA said on Thursday that it saw a strong rebound in 2021 following the Covid crisis, tripling its net profits thanks to a recovery in business activity.

It’s a similar story for Unicaja (€137 million profit in 2021), Caixabank (€5.2 billion profit thanks to merge with Bankia), Sabadell (€530 million profit last year), Abanca (€323 million profit) and all of Spain’s other main banks.

This may be promising news for Spain’s banking sector, but their profits have come at a cost for many of their employees and customers. 

In 2021, 19,000 bank employees lost their jobs, almost all through state-approved ERE layoffs, meant for companies struggling financially.

BBVA employees protest against layoffs in May 2021 in Madrid. Spain’s second-largest bank BBVA is looking to shed 3,800 jobs, affecting 16 percent of its staff, in a move denounced by unions as “scandalous”. (Photo by GABRIEL BOUYS / AFP)

Around 11 percent of bank branches in Spain have also been closed down in 2021 as part of Spanish banks’ attempts to cut costs, even though they’ve agreed to pay just under €5 billion in compensation.

Rampant branch closures have in turn resulted in 2,200 ATMs being removed since the Covid-19 pandemic began, even though the use of cajeros automáticos went up by 20 percent in 2021.

There are now 48,300 ATMs in Spain, levels not seen since 2001.

READ MORE:

Apart from losses caused by the coronavirus crisis, Spain’s financial institutions have justified the lay-offs, branch closures and ATM removals under the premise that there was already a shift to online banking taking place among customers. 

But the problem has been around for longer in a country with stark population differences between the cities and so-called ‘Empty Spain’, with rural communities and elderly people bearing the brunt of it. 

 

Caixabank laid off almost 6,500 workers in the first sixth months of 2021. Photo: ANDER GILLENEA/AFP

Just this month, a 78-year-old Valencian man has than collected 400,000+ signatures in an online petition calling for Spanish banks to offer face-to-face customer service that’s “humane” to elderly people, spurring the Bank of Spain and even Spain’s Prime Minister Pedro Sánchez to publicly say they would address the problem.

READ MORE: ‘I’m old, not stupid’ – How one Spanish senior is demanding face-to-face bank service

It’s worth noting that between 2008 and 2019, Spain had the highest number of branch closures and bank job cuts in Europe, with 48 percent of its branches shuttered compared with a bloc-wide average of 31 percent.

Below is more detailed information on how Santander and BBVA, Spain’s two biggest banks, have reported their huge profits in 2021.

Santander

Driven by a strong performance in the United States and Britain, the bank booked a net profit of €8.1 billion in 2021, close to a 12-year high. 

It was a huge improvement from 2020 when the pandemic hit and the bank suffered a net loss of €8.7 billion after it was forced to write down the value of several of its branches, particularly in the UK. It was also higher than 2019, when the bank posted a net profit of €6.5 billion.

Analysts from FactSet were expecting profits of €7.9 billion. 

“Our 2021 results demonstrate once again the value of our scale and presence across both developed and developing markets, with attributable profit 25 per cent higher than pre-COVID levels in 2019,” said chief executive Ana Botin in a statement.

Net banking income, the equivalent to turnover, also increased, reaching €33.4 billion, compared to €31.9 billion in 2020. This dynamic was made possible by a strong increase in customer numbers, with the group now counting almost 153 million customers worldwide. 

“We have added five million new customers in the last 12 months alone,” said Botin.

Santander performed particularly well in Europe and North America, with profits doubling in constant euros compared to 2020. In the UK, where Santander has a strong presence, current profit even “quadrupled” over the same period to €1.6 billion.

Last year’s net loss was the first in Banco Santander’s history, after having to revise downwards the value of several of its subsidiaries, notably in the UK, because of COVID.

The banking giant, which cut nearly 3,500 jobs at the end of 2020, in September announced an interim shareholder payout of €1.7 billion for its 2021 results. “In the coming weeks, we will announce additional compensation linked to the 2021 results,” it said.

BBVA

The group, which mainly operates in Spain but also in Latin America, Mexico and Turkey, posted profits of €4.65 billion ($5.25 billion), up from €1.3 billion a year earlier.

The result, which followed a solid fourth quarter with profits of €1.34 billion, was higher than expected, with FactSet analysts expecting a figure of €4.32 billion .

Excluding non-recurring items, such as the outcome of a restructuring plan launched last year, it generated profits of 5.07 billion euros in what was the highest figure “in 10 years”, the bank said in a statement.

In 2020, the Spanish bank saw its net profit tumble 63 percent as a result of asset depreciation and provisions taken against an increase in bad loans due to the economic fallout of the virus crisis.

“The economic recovery over the past year has brought with it a marked upturn in banking activity, mainly in the loan portfolio,” the bank explained, pointing to a reduction of the provisions put in place because of Covid.

In 2021, BBVA added a “record” 8.7 million new customers, largely due to the growth of its online activities. It now has 81.7 million customers worldwide.

The group’s net interest margins also rose 6.1 percent year-on-year to €14.7 billion, said the bank, which is undergoing a cost-cutting drive.

So far, it has axed 2,935 jobs and closed down 480 branches as the banking sector undergoes increasing digitalisation and fewer and fewer transactions are carried out over the counter.

At the end of 2020, BBVA sold its US unit to PNC Financial Services for nearly 10 billion euros and decided to reinvest some of the funds in the Turkish market.

In November, it launched a bid to take full control of its Turkish lending subsidiary Garanti, offering €2.25 billion ($2.6 billion) to buy the 50.15 percent stake it does not yet own.

The deal should be finalised in the first quarter of 2022.

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