Over the weekend JPMorgan (JPM) reached a tentative deal to pay $13 billion to settle a number of civil investigations into its sale of mortgage securities prior to the 2008 financial crisis. Though the details are subject to change, based on what we know so far the settlement may be the least consequential 11-figure transaction in history. After five years of wrangling it's not clear who won or lost.
Todd Harrison, founder & CEO of Minyanville Media, says the size of the bounty being collected by Attorney General Eric Holder's Justice Department is impressive... sort of. "Only seven companies in the Dow earned more than $13 billion last year," Harrison says in the attached video. "But in the world of (quantitative easing), banks and government, $13 billion is 'adequate.'"
Regardless of what other companies pull in, $13 billion is roughly half of what JPMorgan pulled down in 2012 and only about 1.5x what the bank paid its executives through the first nine months of this year. Shares are up over 70% since 2008, trouncing the returns of its banking peers. Through mid-day today, JPMorgan shares are flat on the day and actually up more than 3% since the company reported its first quarterly lost under Dimon last week after taking a huge hit on legal fees and fines.
So JP Morgan shareholders are doing fine and with the exception of those who have been fired in conjunction with the "London Whale" debacle, JP Morgan executives are doing fine (at least until the criminal investigation is complete).
CEO Jamie Dimon certainly had crown his scuffed but his legions of fans are quick to observe that Dimon steered JPMorgan through the financial crisis unscathed. "Not too shabby," Harrison puts it, more or less summing up the opinion of the Street towards Dimon.
Surprisingly there aren't even any big winners among the groups on the receiving end of the $13 billion. According to the New York Times and Wall Street Journal the settlement is composed of $4 billion to settle claims that it lied to Fannie Mae and Freddie Mac about the quality of mortgage securities is sold them, $4 billion in consumer relief, and $5 billion in penalties. The $4 billion in consumer relief spread among "Americans" more than five years after the fact is less than it may seem.
The Justice Department and JPMorgan are reportedly still haggling over the degree to which the bank has to admit to misbehavior or failure to follow its compliance policies. Additionally the Times says Holder and other enforcement agencies may use the JPMorgan case as precedent to expand their investigation into Wall Street malfeasance, among other things extending the statute of limitations from five to ten years.
Stifled in the search for a winner or loser, Harrison finally suggests perhaps the $13 billion settlement would be part of the Obama administration's long-promised crack down on Wall Street.
"If you remember back to 2008 when Obama came into office, his first mandate was the health care policy and everybody was scratching their heads a little bit," Harrison offers, not sounding entirely convinced himself. "In hindsight maybe you could argue he was letting the balance sheets reflate a little bit and get themselves back in order. Now he's extracting his pound of flesh."
Ultimately the winner of all these show trials and shakedowns may be right where we'd most expect them. According to Bloomberg America's six largest banks have paid more than $100 billion and counting in legal fees fighting charges and paying settlements that never seem to settle anything.
The wheels of justice turn slowly. For lawyers paid by the hour that pace works just fine.
- Todd Harrison
- Jamie Dimon
- Attorney General Eric Holder