J.P. Morgan Chase just settled with the Justice Department for $13 billion over a series of allegations that the bank, and its acquisitions Washington Mutual and Bear Stearns, knowingly sold faulty mortgage securities that contributed to the financial collapse of 2008.
$13 billion is a lot of money – it’s the largest government penalty levied against a company ever – and a lot of industry interests have been throwing a tantrum. The Wall Street Journal called it “a watershed moment in American capitalism” where the Feds are confiscating company profits for “no other reason than because they can and because they want to appease their left-wing populist allies.” They use a common frame that most of the issues were with Bear and WaMu, and that an innocent and helpless Chase was pressured by the Feds into taking on these failing banks in the first place.
It’s key to note that Chase had been interested in buying the banks before the government asked, that they received these banks for pennies on the dollar with the Feds taking the bulk of the risk, and they’ve been enormously lucrative. It was estimated on Bloomberg that the two companies, essentially acquired for $3 billion, have helped add $36 billion of worth to Chase. At the time of acquiring the banks, Chase’s Superstar CEO Jamie Dimon said, that “there are always uncertainties in deals” and “our eyes are not closed on this one.” The bank certainly had this in mind in 2010 when it prepared for this risk by setting aside $28 billion for litigation regarding the acquisitions.
And for the actual punishment – no individual will be penalized at all. No jail, no personal responsibility. The number may be big, but it’s important to consider Chase’s revenue (it comes out to about half of their annual profits), and also that a percentage of the penalty will be tax-deductible. Maybe the best indication of the severity of the punishment is in Chase’s stock price – as of this week, its at it’s highest point in years.