Why investors shrug at J.P. Morgan’s fines
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“Literally nobody cares.” That was one reaction from a Wall Street bank analyst on the news of a possible $11 billion fine J.P. Morgan Chase & Co. is facing from regulators. The impact of this size of a fine would basically wipe out a little more than a quarter’s worth of earnings for the firm, say analysts.
“When people take a step back, on a pretax, pre-provision basis, J.P. Morgan JPM +0.10% makes about $30 billion to $35 billion a year,” said Paul Miller, bank analyst at FBR Capital Markets.
In fact, J.P. Morgan stock has been up $18 since the London Whale scandal broke last spring, which resulted not just in over $6 billion in losses but also $920 million in fines. J.P. Morgan shares were up more than 2% by the end of Wednesday and advanced in early trading on Thursday.
There is still some litigation out there that could be very material, but in general investors don’t care, added Miller. Investors are looking at this as something the firm can put behind them, say analysts about the potential for a global settlement.
“The mindset of the Street, once there is a settlement, buy the stock,” said Miller.
It should be noted that J.P. Morgan has put up more than $18 billion in litigation reserves since 2008. And some of that has been drawn down, but not very much, observe analysts.
“To the extent that whatever portion of this settlement relates to what the flagship bank did on its own, pre-crisis they should wear it,” said Chris Kotowski, an analyst at Oppenheimer & Co. Inc. on the firm’s reputation.
“To the extent that this settlement reflects actions by J. P. Morgan’s lead bank, shame on them. But since it seems like about 70% of these securities relate to Bear and [Washington Mutual], I’d say shame on the government. The government asked J.P. Morgan to take these troubled companies off its hands, in the case of Bear over just one weekend. To then turn around and sue them for that mainly sends the message that one should not do business with the government.”
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