J.P. Morgan legal fees
I know we all know about all the legal feels Dimon is dealing with right now.
Will this negatively affect their investment bank in the long term? I am wondering what everyone's thoughts are on their legal troubles and if this is just a relatively short period of pain or if it is something that could actually plague the bank and the employees over the long term.
Legal fees? or fines? I'm assuming you're referring to fines (settlements actually) to the SEC and investors.
$13bn is a lot of money. The reason they are happy to pay this amount is because the reputational harm resulting from going to trial and the discovery process would make $13bn look like a rounding error (and its fairly difficult to quantify).
The dollar value of this fine will be managed internally in various ways. Essentially the brunt of this will be borne by customers and employees. Incremental fee increases here and there, and a tightening of the belt compensation-wise. Considering JPM has a $2.5 trillion balance sheet and 260,000 employees... there are a lot of tiny, virtually imperceptible levers to pull that will in aggregate get them spin off an extra $13 billion. They will still feel it... its a lot of fucking money, but there are definite benefits of scale and JPM certainly enjoys them.
Crunching some numbers... $13bn post-tax is $8.5bn, across 5 years its $1.7bn or about 1.5% of JPMorgan's annual revenue. So yeah, there's that.
The SEC also wants sticker shock so they can get recognition publicly and from their bosses. $13 billion fine could very well be a structured settlement of $3 billion in mortgage assistance to potential low income homeowners across the next 10 years, $5 billion in establishing financial responsibility program in community and vocational schools... and similarly stupid shit like this that makes the $13bn have much less teeth than a lump sum upfront $13bn cash payment. The trade off in the settlement process is that the SEC wants the largest number possible to slap on newspaper covers and JPM wants the lowest financially impactful settlement possible.
In terms of its position in the market as an investment bank... arguable. I think the most damning impact is reputational harm. One of the reasons they've gained so much ground since the financial crisis is because they came out relatively unscathed.... now thats not really the case. That being said JPMorgan is JPMorgan, I doubt there will be much of an impact to their brand.... there hasn't been a really messy public fallout like there was with GS and some others (Fab Fabrice, Shitty Timberland Deals, the NYT editorial etc), which I would say is the most damning stuff relationship-wise.
Marcus,
That was a great response. I should say legal fees and fines, since they are both expensive.
In terms of the experience a SA or FT analyst will develop, do you think potential reputation damage will affect the skills they develop with less deal flow or the exit opportunities they could get?
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