Three thoughts on the $13 billion settlement JPMorgan Chase has tentatively agreed to with the U.S. Justice Department:
This is what happens when the Wall Street-Washington revolving door is removed from regulating: JPMorgan initially offered 1$ billion to settle. Then reportedly upped its offer to somewhere around $3 billion. Regulators like the Securities and Exchange Commission or the Commodity Futures Trading Commission would have jumped at any of those dollar figures, accepted a settlement whereby JPMorgan wouldn’t admit any wrongdoing, and called it a day.
But the dynamics at the Justice Department are different. Most of the people at DoJ neither came from Wall Street, nor expect their next job offer to come from Wall Street. That meant they could play hardball. DoJ not only upped the price tag to $13 billion (with some help from the FHFA), but they refused to grant the banks immunity from criminal prosecution — a reportedly key contention during the negotiations.
Now the DoJ has to follow up and actually … you know … file some criminal charges. Otherwise the DoJ is letting JPMorgan buy a get-out-of-jail-free card and just not admitting it.
Homeowner help is worthless: The JPMorgan-DoJ settlement includes $4 billion in relief for struggling homeowners. These settlements whereby banks pay a few billion dollars in homeowner relief are a joke. How many homeowners affected by JPMorgan’s misdeeds are still in their homes? If they are, how many are still in their original JPMorgan loan? Most of these kinds of settlements end up with funds unused by homeowners because of the opt-in nature of the relief. Make the relief opt-out and the funds would be used automatically.
Bottom line: This kind of help would have been useful 3-4 years ago. Now it is just political window-dressing.
Should Jamie Dimon stay or should he go?: Some say the man at the helm of the company hit with the largest corporate fine in U.S. history has got to go. The flip side is that Jamie Dimon has done a downright amazing job of positioning the firm to weather a legal storm of biblical proportions. Consider:
- Including the tentative settlement with the Justice Department, JPMorgan has paid $18.7 billion in fines and settlements since June 2010. $18.7 billion in three years! Add to that an estimated $6 billion hit from the London Whale trading debacle and pretty soon we’re talking about real money.
- How many firms in the world have the kind of balance sheet that could absorb a $25 billion hit? JPMorgan does.
- More precisely, how many firms could take a $13 billion hit from the Feds and not see their share price suffer one iota? JPMorgan can. In fact, JPMorgan’s share price has improved since news of the settlement began to trickle out.
Investors and the market seem to have spoken. Jamie stays.