DOJ stands up to corporate greed

In back to back announcements the Department of Justice signaled it was standing up to unrestricted corporate business practices on Wall Street.

Yesterday, the DOJ said it would bring criminal charges against two former JPMorgan Chase employees who are said to be responsible for a $6 billion trading loss last year that they tried to cover up. Javier Martin-Artajo and Julien Grout are charged with wire fraud, falsifying bank records, and contributing to false regulatory records. Federal authorities are also charging them with conspiracy to commit those crimes after an investigation concluded that the traders “artificially increased” the value of their bets “in order to hide the true extent of hundreds of millions of dollars of losses.” The Securities and Exchange Commission is also planning to take action against JPMorgan for allowing the misconduct. It filed civil charges on Wednesday against the two traders.

In a separate announcement the DOJ also said it would file an injunction seeking to block the merger of American Airlines and U.S. Airways. The merger, which was announced last year, would create nation’s largest air carrier, but federal officials claimed in court papers that the merger would have monopolistic results leading to less choices for consumers and higher ticket prices. Both airlines contend the deal would lead to lower prices and better choices for consumers, and they vowed to fight the Justice Department’s claims in court.

Mergers return but is it real growth?

Despite weak economic growth and dim forecasts for more robust growth in the future, large corporations are taking advantage of weak sales and declining profits to make big on mergers and acquisitions. This week the boards of both American Airlines and U.S. Airways approved an $11 billion merger that has been in the works for almost two years while American has sought bankruptcy protection after losing over $12 billion over the last decade.

Analysts say mega-mergers like the one by the two airlines are back in vogue for some very specific reasons. First, the climate of fiscal austerity after the financial collapse led to firms downsizing and laying off thousands of workers. As a result Fortune 500 companies are now sitting on $1 trillion in cash reserves that are being used to make big plans for a period of future growth.

In addition, credit and finance appears to be on healthier footing than the last few years as banks and lending institutions begin to lend again. Also, private equity firms are once again bargain shopping after  consolidating their credit lines and divesting themselves of toxic holdings.

Finally, financial analysts and investors are cautiously looking to the future in which a period of growth will mean expansion and larger shares of profit. The 500 stock index of the S&P reached its highest levels since 2007 signaling to investors that the time for growth is coming and encouraging companies to go bargain shopping for other firms.

When combined together these different factors are behind the mega-mergers. For example, Dell Computers announced last week as well that it was planning a $24 billion buyout by owner Michael Dell in order to take the company private again. Also, Virgin Media announced a $16 billion acquisition deal by media mogul John Malone for Liberty Global.

The new wave of mega-mergers brings with it mixed results, however. Mergers and acquisitions always lead to downsizing and layoffs, which cripples effective demand further during recessions. Moreover, the promise of improved products and better deals for consumers almost never turn out to be accurate. Profits are the primary concern of such large commercial transactions, and as its been the case historically with other large airline mergers, lower airfares will not be forthcoming.

DOJ blocks AT&T offer for T-Mobile

The Department of Justice filed an anti-trust challenge  in court today blocking a $39 billion deal by communications giant AT&T to acquire wireless giant T-Mobile. The move is part of recent efforts by the Obama Administration to enforce financial and anti-trust regulation after the dearth of enforcement that characterized the Bush years and encouraged a climate of dangerous speculation leading to the financial collapse of the sub-prime housing market. The challenge to AT&T’s merger with T-Mobile follows a recent decision by the DOJ to block NASDAQ’s bid for its European counterpart, NYSE Euronext.

“Consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers, particularly the four remaining national carriers,” said Deputy Attorney General James Cole. “This lawsuit seeks to ensure that everyone can continue to receive the benefits of that competition.”

However, the DOJ made clear that it was in talks with both companies and that there is room for making changes in order to settle the anti-trust challenge. In anticipation of making some compromises AT&T announced it would return 5,000 call center jobs to the U.S. as part of the T-Mobile acquisition. AT&T says its merger will provide improved wireless service to 97 percent of the nation, underscoring the question whether its merger with a competitor will decrease competition for wireless service, increase costs to consumers, and consolidate a well-established monopoly over communications AT&T. ::KPS::