Analysts shed crocodile tears over JPMorgan

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Post-crisis, you can’t just run a bank in the interests of shareholders.

It’s astonishing to hear analysts expressing their pity for JPMorgan having to cough up what is likely to be some $13 billion for mis-sold mortgages. The press joined in: the New York Post went so far as to have its front page state: "US ‘robs’ venerable bank". A figure of $13 billion might sound like a lot of money – it is to the average reader – but to JPMorgan it’s a drop in the ocean. The bank made that much in profits in the first two quarters of this year.

The unusual lamentation from analysts and those concerned with JPMorgan’s share price springs from the fact that most of the fine relates to mortgages that were mis-sold at acquisitions Washington Mutual and Bear Stearns. Just $4 billion of the settlement is from JPMorgan’s own wrongdoings. JPMorgan agreed in October to pay the Federal Housing Finance Agency to resolve allegations that the bank misled mortgage-finance companies Fannie Mae and Freddie Mac about the quality of loans it sold them before the 2008 financial crisis.

What bad sportsmanship by the US government to fine JPMorgan after begging it to bail out WaMu and Bear Stearns! And what signal does this send to other banks next time there is a needed bailout? So say the weeping analysts.

But back up for a moment. JPMorgan has made considerably more than $13 billion from the dodgy mortgages it sold before 2008 plus the gains from getting two institutions for a song. JPMorgan paid $1.9 billion for WaMu, which had $40 billion in shareholders’ equity, and made $2 billion on it immediately. Jamie Dimon’s bank also paid a measly $236 million for Bear Stearns while also getting the Federal Reserve to fund up to $30 billion of its risky assets.

If anyone lost out in those deals it was not JPMorgan. But at least this fine is of some credibility and will set the stage for banks in the future. Shareholders don’t like fines at any time, but especially when they hit double-digit billions. And if an institution acts purely to give shareholders return rather than doing what is legal, then annoying its shareholders is really the only way to get it to act in line.