Even though it was revealed last week that JPMorgan Chase & Co. (NYSE:JPM) may be negotiating a record settlement with U.S. officials, both investors and analysts remain positive on the bank. JPMorgan reported positive earnings earlier this month which were tempered by billions of dollars in losses, and this month’s settlement negotiations will only increase the bank’s losses.
JPMorgan seeks to settle with regulators
Last week it was reported that JPMorgan Chase & Co. (NYSE:JPM) had reached a tentative deal to settle allegations regarding the sale of mortgage-backed securities in the housing boom. That deal was worth $4 billion for the Federal Housing Finance Agency, and the bank was angling for it to be part of a larger $11 billion deal which would settle all civil charges with regulators.
Today Bloomberg’s Dawn Kopecki, Tom Schoenberg, Hugh Son and Dakin Campbell report that JPMorgan CEO Jamie Dimon negotiated the terms of the settlement with U.S. Attorney General Eric Holder after closing bell on Friday. That deal would not cover any potential criminal liability the bank might face, however, and the value of the tentative overall settlement reportedly increased to $13 billion.
It would be the highest amount paid by any financial firm under a settlement with the U.S. government. It would also add up to more than half of JPMorgan Chase & Co. (NYSE:JPM)’s profits last year. According to Bloomberg, the bank was one of just seven companies in the Dow Jones Industrial Average which earned over $13 billion last year.
Investors like JPMorgan
But in spite of the high legal costs, many investors see JPMorgan Chase & Co. (NYSE:JPM)’s current position as a buying opportunity. Ken Langone, founder of The Home Depot, Inc. (NYSE:HD), is one of those who like the bank as an investment. He notes that most of the misbehavior occurred before JPMorgan or Dimon had anything to do with Washington Mutual or Bear Stearns Cos., which JPMorgan acquired in 2008 after the government urged it to do so.
CLSA analyst Mike Mayo also told Bloomberg that shareholders probably won’t stop supporting the bank and that investors will continue to like Dimon and JPMorgan.
Analysts like JPMorgan too
Some analysts, like Nancy Bush at NAB Research, say it’s a mistake for JPMorgan to pay so much to settle the civil charges without also getting an agreement to settle criminal charges. Nonetheless, the general view of JPMorgan Chase & Co. (NYSE:JPM) on Wall Street is positive. Many experts note that it helps that other banks have faced similar charges from regulators and also that the problems stemmed from two companies JPMorgan was not associated with until after the problems occurred.
UBS analysts Derek De Vries, Brennan Hawken and David Eads say the settlement is “a very important, if not final, step on the path back to normalisation.” They expect that as JPMorgan resolves its legal problems a 10 to 15% re-rating is likely. They reiterated their Buy rating and $63 per share price target on JPMorgan Chase & Co. (NYSE:JPM)