Scandal-tainted megabank JPMorgan Chase is losing legal ground in the wake of its multi-year crime wave (if the term "crime wave" seems harsh, we invite you to review the evidence here, here, and here.) But in the wake of its tentative $13 billion settlement with the federal government, it may be on the verge of winning at least one battle -- in the court of public opinion.
Some people are convinced this deal victimizes America's largest bank. A victim? In case you need a refresher course, here's a much abbreviated list of the bank's well-documented misdeeds (a full list is here):
"Violations of the Bank Secrecy Act; laundering money for the Mexican drug cartels; violation of sanction orders against Iran, Cuba, Syria, and Liberian dictator Charles Taylor; knowingly executing fictitious trades; fraudulent sale of unregistered securities; bid-rigging; bribery in Jefferson County, Alabama; energy market manipulation; and mistreating active duty members of the Armed Forces by violating the Servicemembers Civil Relief Act."
And yet, despite its long and well documented string of frauds and other crimes, the bank is nevertheless gaining some sympathy for the argument that $13 billion is an excessive amount. Here's why that's not true.
Chase is feeling no pain.
The current stock price of $54.27 (as of this writing) is higher than it was one month ago, before the settlement was reached. It's higher than it was two weeks ago. It's higher than it was one week ago. It's higher than it was on the last day of active trading, or the day before that.
Investors seem to think this is good news. But even banks with good luck can encounter an occasional injustice. Is that what's happening here, as Chase's defenders are claiming?
It's not about the subsidiaries.
The most common argument one hears is that $13 billion is excessive because most of the misdeeds addressed in the settlement were committed by Chase acquisitions Bear Stearns and Washington Mutual, and that most of the wrongdoing took place before Chase acquired them. Here's why that argument is wrong:
First, we only have only JPMorgan's word for that -- the bank has said that these subsidiaries are responsible for 70% or 80% of the fraud in question. Remember, CEO Jamie Dimon also told everyone -- including investors, toward whom he has legal obligations -- that the London Whale case was a "tempest in a teapot." We now know he knew otherwise at the time he said it.
Second, we don't know the total value of the fraud that may have been committed in this case. Even if we accept the possibility that Chase was only responsible for less than one-third of the fraud, which is their contention, it doesn't necessarily follow that the bank should only pay one third of $13 billion. The entire fraud committed in this case may be significantly larger than that.
If it was greater than $39 billion then, even by that standard, this settlement might be reasonable or even too low.
It's not a lot of money compared to the scope of the alleged misdeeds.
How big is the fraud in question?