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JPMorgan to Pay $300 Million to Settle U.S. Allegations

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JPMorgan Chase & Co. will pay more than $300 million to settle U.S. allegations that it didn’t properly inform clients about what the Securities and Exchange Commission called numerous conflicts of interest in how it managed customers’ money over a half decade.

The largest U.S. bank by assets failed to tell customers that it reaped profits by putting their money into mutual funds and hedge funds that generated fees for the company, the SEC said in announcing $267 million in penalties and disgorgement against JPMorgan. The bank agreed to pay $40 million more as part of a parallel action by the Commodity Futures Trading Commission.

JPMorgan admitted disclosure failures from 2008 to 2013 related to two units that manage money — its securities subsidiary and its nationally chartered bank — as part of the SEC settlement. The New York-based bank said that the omissions in its communications were unintentional and that it has since enhanced its disclosures.

“Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving,” Andrew J. Ceresney, director of the SEC Enforcement Division, said in a statement. “These JPMorgan subsidiaries failed to disclose that they preferred to invest client money in firm-managed mutual funds and hedge funds, and clients were denied all the facts to determine why investment decisions were being made by their investment advisers.”

Two-Year Probe

The settlement caps roughly two years of investigations during which the government deposed asset-management executives and issued subpoenas for internal documents. The SEC’s enforcement division had been looking into whether the bank encouraged their financial advisers to steer clients improperly into investments that generated fees for the bank, people familiar with the investigation said earlier this year.

In its order, the SEC said the bank cooperated with commission staff, hired an independent compliance consultant and carried out its recommendations.

The disclosure weaknesses cited in the settlements “were not intentional and we regret them,” said Darin Oduyoye, a JPMorgan spokesman. “We have always strived for full transparency in client communications, and in the last two years have further enhanced our disclosures in support of that goal.”

Record Penalty

While the agency extracted a record penalty for an asset manager, JPMorgan can continue operating as it has been in one of its most profitable businesses. The $307 million in fines and disgorgement accounts for a bit more than 1 percent of the company’s annual operating profits, or about a month of those at its asset-management division.

The settlement, announced on the Friday before Christmas, didn’t go far enough, said Dennis Kelleher, a lawyer who runs Better Markets, a consumer advocacy group.

“The conduct involves steering clients into proprietary products so brokers get higher commissions and JPMorgan gets good asset-management numbers,” said Kelleher, who said the practices remain costly for customers, additional disclosures notwithstanding. “This wasn’t a rogue trader. It wasn’t an individual employee. It’s not a mistake. It’s a five-year pattern.”

‘Exhausting Process’

With the settlement, the bank moves beyond one of its last major regulatory challenges since the 2008 financial crisis. JPMorgan has been penalized more than $23 billion in major settlements with U.S. authorities in recent years, in connection with allegations that included conspiring to manipulate foreign-currency rates, allowing the “London Whale” trader to exceed risk limits, failing to flag transactions related to Bernard Madoff’s Ponzi scheme and misrepresenting the value of mortgage-backed securities.

“Investors are glad that the bank agreed to a settlement to move forward and this isn’t an overhang for the business anymore,” said Pri de Silva, a senior banking analyst at CreditSights Inc. in New York. “We are at the tail-end of the post-crisis litigation actions, but its been an expensive, exhausting process. I think both banks and the investor base are tired of it.”

JPMorgan shares fell 2.8 percent to $64.40 at 4:15 p.m. amid a broad decline in financial shares. The bank has climbed 2.9 percent this year, outperforming the 2.3 percent decline of the KBW Bank Index.

Expanded Operation

The SEC’s inquiries looked into JPMorgan Asset Management, a unit that grew rapidly after the 2008 financial crisis, as new regulations crimped areas including hedge-fund and proprietary trading operations that have traditionally been lucrative for Wall Street firms. The bank expanded an operation that pairs wealth management and investment funds in one reporting structure, run by Mary Erdoes, seen as one of a half-dozen in-house favorites to eventually replace Chief Executive Officer Jamie Dimon.

JPMorgan expanded its in-house mutual funds even as many competitors pulled back. Over the past decade, Morgan Stanley, Citigroup Inc. and Bank of America Corp. have shed such fund businesses after being fined for allowing conflicts of interest to result in sales abuses.

JPMorgan Asset Management — with mutual funds, alternative investments, private wealth management and some trust operations — had the highest rate of revenue growth among the bank’s four main operating units. It also had the highest percentage growth in asset inflows of any large manager in the five years through 2014, ending the year with $1.7 trillion under management, according to a February presentation to investors.

Cross-selling and synergies between units was worth $14 billion across the bank in 2012, it said in a February 2013 presentation to investors. The bank attributed $1.1 billion of that to the synergies of selling the bank’s investment-management products to private banking clients.

‘Numerous Conflicts’

JPMorgan “failed to disclose numerous conflicts of interest to certain wealth management clients,” the SEC said in its announcement. That included not telling customers of a retail product, Chase Strategic Portfolio, that it was designed to favor in-house mutual funds, or that the bank might put them into a higher-fee fund when a lower-fee version of the same fund was available. The bank’s investment advisory business, J.P. Morgan Securities LLC, also failed to disclose that it had a financial incentive to favor the bank’s funds because it received a discount on them from another JPMorgan unit, the SEC said.

At one point in early 2011, JPMorgan invested 47 percent of mutual-fund assets and 35 percent of hedge-fund assets in products and accounts that had ties to it, according to the SEC order.

‘Retrocession Payments’

JPMorgan Chase Bank failed to disclose its preference for third-party funds that shared revenue with the bank, the SEC said. During initial meetings, third-party managers were typically asked if they were willing to share their fees. If they declined, JPMorgan typically would look for an alternative manager who was willing. The bank began disclosing that it may receive these “retrocession” payments in August 2015, the SEC said.

JPMorgan agreed to pay a $40 million civil penalty to the CFTC, which also cited $60 million in disgorgement that was part of the SEC settlement.

The bank’s settlement with the SEC included a penalty component of $127 million. That surpassed the agency’s previous record of $100 million, levied on Alliance Capital Management 11 years ago, according to an SEC spokeswoman.

SEC Waiver

As part of the settlement, JPMorgan received permission to continue raising money for private companies including hedge funds and startups. The bank could have been barred from that lucrative activity based on investor protections that automatically disqualify firms found to have violated securities laws. That so-called waiver came with a condition that JPMorgan hire an independent consultant to annually certify its plan for complying with rules for private fundraising.

A senior bank executive or legal officer will have to certify in writing that they reviewed the consultant’s report. The SEC can revoke the waiver if JPMorgan is found to have repeated the kind of wrongdoing that triggered the latest SEC enforcement action.

“J.P. Morgan put its interest before its clients by failing to disclose significant conflicts of interest,” said Democratic Commissioner Kara Stein, who supported the added waiver restrictions. “These failures were part of an institutional breakdown that operated as a fraud on both its clients and its prospective clients.”

Bloomberg

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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FG to Ease Economic Burden of 1.7m Small Businesses, Individuals

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FG to Provide Financial Support for 1.7m Small Businesses and Individuals

The Federal Government has said it will provide financial support for 1.7 million businesses and individuals in the next three months.

The Minister of State for Industry, Trade and Investment, Ambassador Mariam Katagum, disclosed this at the virtual commissioning of the Fashion Cluster Shared Facility for Micro, Small and Medium Enterprises (MSMEs) held at Eko Fashion Hub, in Lagos.

According to the minister, the initiative was borne out of the government’s continued effort at cushion the negative impact of COVID-19 on the people by protecting present jobs while simultaneously creating new opportunities.

She further explained that the administration of President Buhari, through the Economic Sustainability Committee, had launched specific programmes to cushion the negative effect of COVID-19 on small businesses across the country.

She said, “The Federal Government is fully committed to empowering Nigerians; more so in the face of the COVID-19 Pandemic. In this regard, the government, through the Economic Sustainability Committee had announced specific programmes aimed at cushioning the impact of COVID-19 on MSME businesses.

“These programmes include among others, the N75 billion MSME Survival Fund and Guaranteed Off-take Schemes of which I have the honour to chair the Steering Committee for the effective implementation of the projects.

“The project, which will run for an initial period of three months, is targeting 1.7million entities and individuals and has provisions for 45 per cent female-owned businesses and five per cent for those with special needs. The registration portal for the schemes is set to open on Monday 21st September 2020 and I urge you all to take full advantage of the schemes.”

Katagum explained that the Nigerian Economic Sustainability Plan, which was developed by a committee headed by the Vice President, Yemi Osinbajo, was introduced to combat the health and economic challenges brought about by the COVID-19 pandemic.

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OPay, WorldRemit Partner to Deepen Mobile Money Transfer Service

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Nigerian financial service technology company, OPay has announced a partnership with leading global digital payments platform WorldRemit, to offer international money transfers directly into OPay mobile wallets in Nigeria.

The partnership between OPay and WorldRemit will provide Nigerians with a fast, easy and more affordable way to receive money from over 50 countries including the United States, United Kingdom and Canada directly into their mobile phones.

Nigerian financial service technology company, OPay has announced a partnership with leading global digital payments platform WorldRemit, to offer international money transfers directly into OPay mobile wallets in Nigeria.

The partnership between OPay and WorldRemit will provide Nigerians with a fast, easy and more affordable way to receive money from over 50 countries including the United States, United Kingdom and Canada directly into their mobile phones.

OPay also offers an exciting opportunity for customers to save and invest their money in its FlexiFixed service, which offers up to 12% returns per annum.

The service, which launches in September 2020, is immediately available to all OPay customers on KYC 2 level and above. New customers can download the Opay app from the Google Playstore or iOS store and upgrade to KYC level 2 to instantly access the service.

“This partnership ensures that customers can continue to make affordable money transfers to their family and friends in the comfort of their homes. Together WorldRemit and OPay are disrupting traditional money transfer methods by delivering services that customers can access 24/7 via smartphones at their convenience.

“I’m pleased to share that we’ve reduced prices in 48 corridors and passed the savings onto our customers. With communities across the world having to change their lifestyles due to the disruption caused by Covid-19, we’re proud to play our part in making sure our customers can continue to support their family and friends throughout this challenging time,” says Gbenga Okejimi, Country Manager for Nigeria & Ghana at WorldRemit.

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COVID-19: Africa’s Hospitality Industry Loses $50 Billion

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Hospitality Industry In Africa Loses $50 Billion to COVID-19

Global health pandemic has erased more than $50 billion in revenue from the hotel and tourism industry in Africa, according to a recent report.

African Union stated this in a report titled “Impact of the coronavirus (COVID-19) on the African economy”.

However, on Thursday Transcorp Hotel admitted suffering unprecedented losses and therefore has decided to let go 40 percent of its present staff as it moves to restructure and reposition the company for the new normal.

To this end, the hotelier is diversifying its portfolio and reducing its workforce as part of its cost management initiatives,” Transcorp Hotels Plc Managing Director Mrs. Dupe Olusola, said at a news conference yesterday.

She went on: “The impact of COVID-19 on the business is like nothing the company has ever witnessed. The hotel and hospitality industry in Nigeria has never faced a crisis that brought travel to a standstill, including the Ebola Virus Outbreak of 2014 and the recession of 2015.

“The slow pick up of international travel, restriction on large gatherings, the switch to virtual meetings and fear of the virus, has drastically reduced demand for our hotels and occupancy levels to its lowest of less than five per cent.

“Despite the losses incurred we have fulfilled our obligations to staff. At the inception of the pandemic, we maintained a 100 per cent salary payment to our over 900 employees in March and April.

“We also activated various cost-saving initiatives such as renegotiations of service contracts and restructuring of our loans. We suspended further commitment to buy fixed assets and operating equipment as well as reducing our energy consumption and maintenance costs.

Despite undertaking these, it has become apparent that more fundamental changes need to be made for the business to survive. To this end, our workforce headcount will be reduced by at least 40 per cent and our reward system will be optimised.”

Mrs. Olusola further disclosed how the company plans to adequately compensated its workers given the peculiarities of the economy at this time.

She said: “A health insurance package to reduce their health burden costs, especially during the pandemic, amongst other payment settlements, will be activated. Equally, all Executives of Transcorp Hilton Abuja have now taken a pay cut.

“As one of the leading hospitality brands in Africa, Transcorp Hotels Plc has stated its commitment to uphold service standards and ensure that all guests continue to experience the warmth and hospitality that it is known for.”

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