By David Weidner, MarketWatch
SAN FRANCISCO (MarketWatch) -- Wall Street may greet J.P. Morgan Chase & Co.'s potential $11 billion settlement with federal regulators with a yawn, but should the bank get hit with private lawsuits and additional scrutiny, the deal could startle them awake -- and put the CEO at risk.
Reports that J.P. Morgan (JPM) , in principle, had agreed to pay the amount to settle allegations it defrauded investors in mortgage securities packaged by the bank were circulating Thursday, as Jamie Dimon, the bank's chairman and chief executive, met with U.S. Attorney Eric Holder in Washington.
Since J.P. Morgan has ample legal reserves, and because Dimon warned his staff and investors in a letter earlier this month, the eye-popping amount -- the biggest settlement in U.S. corporate history by some measures -- isn't a back breaker in the eyes of many investors. Many of them feel these huge payouts are part of doing business in the post-crisis regulatory environment. The cost is just a third of the company's pre-tax profit on an annual basis.
A bigger, and less acknowledged risk: private lawsuits. Dimon reportedly is making the case to Holder that J.P. Morgan should not have to admit wrongdoing. If it does, the bank increases its exposure to suits filed by investors in the mortgage-backed securities in question.
These suits could take years to resolve and cost the bank not only in payouts, but in legal fees. In the end, they may not make a significant dent in earnings, but they would be watched -- as the legal liabilities are watched now -- every quarter until they are resolved.
After the embarrassment of the "London whale" trading scandal, the ongoing interest-rate rigging case, energy-trading manipulation cases and other debacles, Dimon knows goodwill is running short for the confidence in his leadership. He needs to get this mess behind him. After all, he is one CEO who actually held the position as these misdeeds were happening.
Ken Lewis, who once ran Bank of America Corp. (BAC) , once thought he was impervious to criticism too.
Maybe Dimon can weather this settlement -- and more. He's probably better off not finding out.
-David Weidner; 415-439-6400; AskNewswires@dowjones.com
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09-26-13 1337ETCopyright (c) 2013 Dow Jones & Company, Inc.
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