All of these intangible assets have genuine value, and they undoubtedly drove up the bank's share prices.
The Half-Trillion Dollar Loss
And yet Ms. Douglas reports that JPM "took a $10 billion hit." Time for a little more arithmetic:
That would have to mean that total losses came to more than $400 billion. Here's why: The total cost to JPM would have to include a $1.5 billion purchase price. Then it would be forced to absorb the first billion in losses before the Fed's guarantee kicks in. That makes $2.5 billion.
At this point the bank would still be $367.5 billion ahead on the deal. And that's not counting any of the intangible advantages of the deal, which are immense (and which could be computed with enough time and information.)
In order to take an additional "hit," these unspecified losses would have to burn through the $29 billion guarantee from the Fed. After that, JPMorgan Chase would presumably have to start paying for the losses. But they'd still need to pay out more than $367.5 billion before they even began to "take a hit."
The total would have to exceed $400 billion before JPM could lose anything like the amount cited in the Post article. (I've put the rest of the calculation in a footnote.) Or, if you prefer to round up a bit, something approaching half a trillion dollars.
The Mystery Hit
Unless, that is, the losses didn't come from Bear Stearns' mortgage securities. In that case the losses only have to exceed $367 billion. And "only" should be written in quotes. However you cut it, the idea of a $10 billion "hit" from this book of business is very hard to believe ... at least, not without a lot more information than the Post provides.
One other thing: Douglas also reports, as do many other media outlets, that "the government realized a $765 million profit from the interest earned on the vehicle created to hold the securities." That "profit" is a rounding error compared to the sums given to JPM during the course of the crisis. And if the government earned this profit from its involvement, does that mean the Fed didn't pay out the $29 billion?
If it didn't pay out on those losses, that would only lead us back to our original question: Where did the "$10 billion dollar hit" come from?
Not Even Close
This acquisition gave JPM a lot of good will -- both in the accounting sense, and politically. It gave it a huge marketing boost, increased market dominance, and an even greater implied government guarantee against failure as it became even more "too big to fail."
Douglas' piece says that Jamie Dimon was asked whether he'd do this acquisition again today, knowing what he knows now. His answer? "It's real close." I'm going to go out on a limb here and make a statement of my own: If he'd lost ten billion dollars for no good reason on this deal, that question wouldn't be close at all.
One more question: Has Dimon been criticized by anyone on the board for an act of charity toward the US government that cost his shareholders ten billion? Because if that's what it was, he breached his fiduciary responsibility as CEO.
It's very unlikely that he did.
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