As readers will recall, J.P. Morgan received the first large bail-out from the New York FED of $55 Billion in April 2008, guaranteed by $55 Billion of Bear Stearns' toxic assets. The loans' purpose was to prop up Morgan's liquidity position as a reward for buying Bear Stearns stock. Of the $55 billion, given to J.P. Morgan, $29 Billion was non - recourse to J.P. Morgan and Bear Stearns.

J.P. Morgan also recently received another $25 Billion in TARP payments from the Treasury.

This article is about how J.P. Morgan's executives , instead of receiving easy to value cash bonuses, received very large bonuses in the form of Stock Appreciation Rights (SARs) and Restricted Stock Units (RSUs). These equity compensation securities are not easy to understand or value except by experts.

SARs are very similar to employee stock options and Restricted Stock Units are very similar to Restricted Stock.

These SARs were granted on January 20, 2009, the day that the J.P.Morgan stock reached its lowest in five years. The stock quickly rebounded as illustrated in the graph below. The arrow indicates the day and the price of the stock when the grant was made.

On January 22, 2008 we see an earlier example of SARs grants to J.P. Morgan executives with the stock at a low point followed by a substantial rebound in the next days.

Let's examine the size of the bonuses of the top 15 executives, at J.P. Morgan, that were granted on January, 20, 2009 and reported two days later.

See the link below:

http://www.secform4.com/insider-trading/19617.htm

Stock Appreciation Rights Granted

SARs Amounts..........Name of.......Exercise...Value 2/6/09
Granted....................Grantee........Price

700,000 .....................Winters .......19.49.......$11,300,000

700,000.......................Black .........19.49.......$11,300,000

500,000 .................... Staley..........19.49........ $8,100,000

300,000.....................Scharf........... 19.49.......$4,890,000

250,000.....................Drew .............19.49 ..... $4,075,000

200,000.....................Miller.............19.49.......$3,260,000

200,000....................Rauchenberger 19.49.......$3,260,000

200,000.....................Smith..............19.49......$3,260,000

200,000.................... Zubrow............19.49......$3,260,000

200,000.....................Bisignano.......� 19.49......$3,260,000

200,000.....................Mandelbaum.....19.49......$3,260,000

200,000......................Cutler.............19.49......$3,260,000

200,000......................Maclin.............19.49......$3,260,000

100,000......................Daley................19.49..... $1,630,000
----------------------------------------------------------------------------------------
Total value (2/6/09) of SARs Granted� =� $81,405,000

Restricted Stock Units Granted

Stock Amt......... Grantee ..... Stock Val.............. Val on
.............................................2/4/09...............2/04/09


115,474............... Staley ...........24.10 ............ $2,782,923

102,644 .............. Miller ........... 24.10 ............ $2,473,720

102,644................Scharf ...........24.10 ............. $2,473,720

102,644 .............. Smith.............24.10...............$2,473,720

102,644 .............. Bisignano......24.10 .............. $2,473,720

102,644 .............. Cavanaugh ...24.10.................$2,473,720

102,644................Drew.............24.10.................$2,473,720

102,644................Maclin.......... 24.10.................$2,473,720

89,813..................Zubrow.........24.10 .................$2,164,400

89,813..................Cutler...........24.10 .................$2,164,493

59,662..................Daley............24.10..................$1,364,542

35,926................Rauchenberger .24.10...................$865,816

----------------------------------------------------------------------------------------
Total value (2/6/09) of SARs Granted =  $81,405,000

Total value (2/6/09) of RSUs Granted =  $30,500,000

Total value (2/6/09)of Grants to top15 executives= $111,905,000

-----------------------------------------------------------------------------

These totals are far more than the top executives of Merrill Lynch were to receive as their year end bonuses in cash and equity. The New York Attorney General is supposedly investigating Merrill's executives for criminal wrong doing

Merrill CEO, John Thain was granting himself just $10 million whereas at least three Morgan executives exceeded that in equity compensation alone.

An interesting question arises from an examination of the fact that for the past two years grants were made on or around January 20. It just happened that the stock dropped prior to the grant and moved upward immediately after the grants. Its hard to accept the idea that those executives just got very lucky for two years in a row. Yes, I am suggesting collusion in the manipulation of the stock to accommodate the grants of options etc.

Some refer to this as spring-loading the options grants.

Is J.P. Morgan immune from investigation?

Now what we find is that bankers' errand boy extraordinaire CEO, James Dimon, is popping off about the ridiculous idea that J.P. Morgan does not need further bail-out money after Morgan grabbed $55 Billion in the Bear Sterns deal and another $25 Billion of TARP money in banker welfare payments. See:

http://www.bloomberg.com/apps/news?pid=20601109&sid=azVLk.22AkLI


If they do not need the bail-outs, let Morgan and Goldman return the welfare payments.

Perhaps also an explanation is in order of why James Dimon is not prosecuted for violations of Title 18 Section 208 U.S.C. in his role as Director of the New York Federal Bank in approving the J.P. Morgan/Bear Stearns deal, while holding more than 3 million shares of J.P. Morgan stock.

The link below is the Title 18 Section 208. See for yourself if his actions constitute a violation of the Statute.

http://law.onecle.com/uscode/18/208.html

 

Apparently J.P. Morgan and Goldman Sachs and others have paid off their Tarp preferred stock grant by borrowing from the NY FED at 1/2 percent.



John Olagues

P.S.

A full reading of the SEC Form 4.com link above shows that there were sales of stock by most of the 15 executives at 23.2 in the days following the issues of the SARs and RSUs granted when the stock was 19.49. Mr. Jamie Dimon also sold 137,033 shares of stock at 23.2.

The sales and the grants are trades of equity securities within 6 months and are considered matching trades for Section 16 b of the Securities Act of 1934. Section 16 b requires those profits from the buys and sales to be "short swing" profits and are returnable to J.P. Morgan.

Now, securities attorneys will say that the grants of the SARs and RSUs are exempt under SEC Rule 16 b-3. They will also claim that since the shares sold were formerly restricted stock which has become vested with a tax liability, that the sale to pay those taxes are exempt from Section 16 b of the Act of 1934.

However, thse SEC Rule effectively defeats the Statute and therefore is beyond the SEC's Rule making authority and is void. SEC Rule 16 b-3 is just another part of the SEC accommodating the executive compensation abuses including back-dating and spring loading.

If you are a holder of JP Morgan stock you can request that Jamie and his boys return their "short swing" profits. If they do not return the money, any share holder has a private right of action against Jamie and his boys to get the profits returned to the share holders.

P.P.S

Also in the linked secform4.com info is a mention that Jamie purchased 500,000 of JPM stock on Jan 16, 2009, and spent another $10,000,000 on another form of JPM stock on 10/21/08. Jan 16,2009 was one day after the earnings report of Jan 15, 2009. The 17th was a Saturday and Monday the 19th was MLKs holiday. He just couldn't wait until Tuesday, when all the options were granted.

I am not certain but I believe that those purchases violate JPMs black- out period and is a violation of SEC Rule 10 b-5.

That purchase was probably done with a non recourse loan from JPMorgan. Therefore Dimon essentially received a grant of 500,000 million ESOs worth $8 Million on 2/06/09. Only a few will understands how the buy with a non recourse loan becomes a a grant of options, especially if the loan carries an interest rate equal to the Fed Funds rate of 1/2 % or lower. Both Mr. Lewis of Bank of American and Mr. Pandit of Citigroup received similar disguised grants.

JAO

http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470471921,descCd-google_preview.html