JPMorgan Backs Away From The Brink With Russia

JPMorganJoe Mabel [CC BY-SA 3.0], via Wikimedia Commons

JPMorgan Chase & Co. (NYSE:JPM) has backed off its confrontation with the Russian government, ending a brief if tense standoff between a private corporation and a onetime nuclear superpower.

Confusion surrounds new Russian sanctions

At issue were sanctions placed on the Russian government by the US in retaliation for Russia’s invasion of Crimeria.

For its part Russia called the event “unacceptable, illegal and absurd” act of blocking the payment would have consequences for the U.S. Embassy in Russia, Reuters noted. “The confrontation threatened to further strain ties between Washington and Moscow, locked in the worst standoff since the Cold War over Russia’s annexation of Ukraine’s Crimea region,” the report observed.

In allowing Russia’s embassy in Kazakhstan to transfer funds in a business transaction with a private insurance agency, the bank briefly exited a game of international intrigue in a mounting power struggle between the US and Russia. JPMorgan’s brief entry and exit is intriguing.  Given the heightened diplomatic tensions, it is unclear if JPMorgan Chase & Co. (NYSE:JPM) made the US State Department aware it would take such a confrontational action before proceeding, but regulatory coordination is apparent.

“Following consultation with our regulators, we are processing this transaction,” JPMorgan said in a statement reviewed by Reuters.  It is unclear the impact sanctions will have on the US banking behemoth. JPMorgan Chase & Co. (NYSE:JPM) is reported to have generated $55.6 million in investment banking fees from Russia in 2013, according to Thomson Reuters data. Russia’s fees account for just under 10% of JPMorgan’s investment banking revenue last year.

How serious are bankers taking sanctions?

Depending on the circumstance and size of the bank, illegally holding and transferring assets can have serious consequences.  While smaller bank executives have been sent to jail when money laundering was discovered for drug dealers, HSBC bank was given a fine, a percentage of profits, when it was found to have improperly managed assets of Iranian groups and drug cartels who had been banned from doing business with banks.  It is unclear how seriously the bank embargo on Russia was taken by JPMorgan Chase & Co. (NYSE:JPM). France’s largest bank, BNP Paribas, set aside $1.1 billion for potential fines relating to illegally managing money for Iran, a violation of U.S. sanctions, according to the report.

This wouldn’t be the first time confusions regarding US sanctions on Iran have been misinterpreted. Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) briefly discontinued services to Russian bank SMP. Other major US banks operating in Russia include Goldman Sachs Group Inc (NYSE:GS), Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C) and Morgan Stanley (NYSE:MS).



About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com