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Wednesday, November 20, 2013

Over half of the $13 billion JPMorgan Chase settlement is 'tax-deductible'

November 20, 2013

Despite the $13 billion dollar settlement,
JPMorgan Chase will be fine.
JPMorgan Chase agreed to the largest corporate settlement in American history yesterday, consenting to pay $13 billion dollars to the federal government as a result of its actions in the mortgage crisis. 

But while the figures involved in the settlement with the Justice Department appear to be highly punitive on the surface, a series of statements by the corporation's top executives in the wake of the agreement downplays the significance of the fine.

NPR reports that JPMorgan Chief Financial Officer Marianne Lake told reporters on a conference call that " that $7 billion of compensatory payments will be deductible for tax purposes."

The company added in a press release that it is “fully reserved for this settlement,” meaning that money to pay the claim has already been set aside.

Most importantly, in spite of a statement of facts in which JPMorgan Chase admits to causing economic calamity by intentionally deceiving investors about it’s toxic mortgage-backed securities, the details of the settlement make it more of an altruistic donation on the behalf of JPMorgan towards helping down-on-their-luck Americans than an admission of criminal impropriety.

"We did not admit to a violation of law," JPMorgan CEO Jamie Dimon stressed to reporters during a conference call.

In fact, Dimon sounded downright spirited in the company’s press release about the deal.

"We are pleased to have concluded this extensive agreement,” Dimon said about the payments, $4 billion of which will go to the tens of thousands of struggling homeowners who are facing hardships as a result of the corporate greed of a company he has run since 2006.

JPMorgan Chief Financial Officer Marianne Lake was careful to minimize the significance of the fine on the financial institution's bottom-line.

Lake said that "While we appreciate that the amounts in these settlements are significant…” she told reporters the company has $23 billion stashed away in a litigation reserve fund just in case it runs into a minor legal snafu, such as the $1 billion dollar fine it recently ponied up as a result of the "London whale" scandal, in which the company's admittedly “reckless conduct” resulted in $6.2 billion in trading losses.

In fact, with the Justice Department agreement now behind it, JPMorgan Chase finds itself in an advantageous position over its financial rivals, who are next to face the DOJ reckoning.

“[The settlement is] a huge amount of money obviously, and it obviously reduced their net worth when they made the reserve,” Robert Kaplan, the former vice chairman at Goldman Sachs, told the Christian Science Monitor

“But having said that, they’re still well capitalized, they can still manage it, and the reality is, JPMorgan from here will be evaluated on their ability to generate earnings.

“And this takes a real overhang off the table that might have jeopardized their ability to generate earnings in the future.”