JP Morgan’s Legal Costs and Contingent Risks
A new earnings release and statement from JP Morgan indicates the bank is doing its best to make sure that large New York law firms thrive for at least a few more years. Indeed, one could wonder where the New York firms would be financially if they lacked the massive legal work generated by CDO fraud, bank scandals, the Lehman fiasco ($3 billion of fees, last I heard), as well as Delaware and the SDNY becoming the homes for corporate forum shopping, especially as to chapter 11s. Of course, the reserve is not all for legal fees and much of the reserve is to pay settlements, but nonetheless, the fees to Paul Weiss et al must be enormous.The reserving quote attributed to Jamie Dimon (see below) also offers a cautionary note for businesses facing contingent claims:
"J.P. Morgan’s pretax litigation expense was $9.15 billion, versus the $684 million reported a year earlier and $600 million in the second quarter. The bank had said it expected to increase litigation reserves by at least $1.5 billion this quarter.
Chief Executive Jamie Dimon said "in this highly charged and unpredictable environment, with escalating demands and penalties from multiple government agencies, we thought it was prudent to significantly strengthen" the bank’s legal expenses. "While we expect our litigation costs should abate and normalize over time, they may continue to be volatile over the next several quarters," he said.
No U.S. bank is grappling with as much regulatory and legal scrutiny as J.P. Morgan. Authorities have been investigating whether the bank–which acquired Bear Stearns Cos. and Washington Mutual Inc. during the financial crisis–misled investors about the quality of the underlying mortgages that were tied to mortgage-backed securities issued by Bear and WaMu before the crisis. J.P. Morgan now faces a potential settlement tab of up to $11 billion after U.S. Attorney General Eric Holder rejected the bank’s offer of a $3 billion payment to end criminal and civil charges."