Here’s Proof That The Record Fine Against JP Morgan Won’t Impact Its Bottom Line


JP Morgan’s (JPM) headline-grabbing settlement deal that resolves nearly all outstanding allegations relating to its financial crisis misdeeds hasn’t actually hurt the bank’s bottom line. The leap in the bank’s stock price since news of the deal first broke has been large enough to more than outweigh the actual cost of the so-called $13 billion deal with regulators and prosecutors.

The bank’s stock has climbed by 3 percent since the deal was officially announced last week. That translates to a $7 billion gain, more than half of the on-paper price of the JPM settlement. The stock is up 6 percent since a tentative deal first made headlines in late October, marking a $12 billion gain for shareholders.

The stock gains accrue to shareholders rather than to the bank’s internal balance sheet, so the comparison between the settlement costs and the bank’s market value is imperfect. But the news invalidates some of the most common arguments about the deal, one from defenders of the package and another from detractors. The government portrays the settlement as taking a substantial bite out of JPM’s bottom line and delivering an effective punishment for financial misdeeds that will deter the industry from the sorts of misrepresentations and abuses that typified the financial collapse. But the bank’s stock shows that its bottom line is untroubled. And as the Huffington Post’s Mark Gongloff points out, JPM is outperforming its fellow banks — the competitors who are supposed to take a lesson from the settlement.

Similarly, many defenders of Wall Street have decried the settlement as a misguided punishment that hurts mom-and-pop investors by driving down the bank stocks that are a key part of many 401(k) investment portfolios. The stock price moves of the past month confirm that JPM got out of trouble for cheap and the supposedly landmark settlement is just a blip for shareholders.

As ThinkProgress has detailed, the $13 billion sticker price of the deal is not what it seems in other key ways. The deal is largely tax deductible and the bank will be able to save about $4 billion on its taxes as a result. Another $4 billion of the tab comes not from actual cash outlays from JPM, but easily fudged consumer relief provisions — most of them actions the bank would take anyway or that actually shore up its bottom line — that drive the actual expense from the deal down toward $5 billion.

The stock jump hasn’t prevented the bank from griping publicly about the deal. Last Friday, JPM general counsel Stephen Cutler said that the settlement was too harsh and that the government should focus its energy elsewhere.