When $11 billion is cheap

JPMorgan could catch a break if authorities agree.

By Jim Cramer Sep 26, 2013 9:24AM

People pass a sign for JPMorgan Chase & Co. at headquarters in Manhattan in New York City (© Spencer Platt/Getty Images)In what world would an $11 billion settlement be cheap? How about in the 

thestreet.comworld of banking?


If JPMorgan Chase (JPM) can actually get the federal and state authorities to sign a piece of paper saying they can only sue them for future infractions in the mortgage market and not past ones, then JPMorgan will have gotten a huge bargain. It could be fabulous for the bank.


The reason? Two words: Normalized earnings. That's right. If we could see what JPM could earn excluding all of these cases, then we could build a model. If we could build a model we might be able to find out what JPMorgan's worth on an earnings basis. Until then, we are stuck in some world where we don't know what this bank, the envy of the industry, can really earn. Right now the Street is clustered at around $6 in earnings power for next year.


But what would you pay for that stream? What would you pay for that stream if you knew it came attached to a buyback of some size? What would you pay for it if you knew that it contained several dividend hikes, hikes that were decided upon by the bank's board itself? What could that be worth? How about a 10 multiple? Eleven? Maybe even a 12? How about in a rising-rate environment, one where the 10-year Treasury goes to 4%, adding about $4 billion to the bottom line? How about where you take out the possible $4 billion in legal costs that JPMorgan might end up paying annually as this insanity of nationwide court battles drags on?


That $11 billion dollar price tag is dirt cheap when you consider all of the positives that could come out after the payment, especially when you know that JPMorgan has a fortress ATM machine that can spit out fortress dollars to pay Fort Knox.



Now it's tough to come up with a figure. The number has to be substantial enough to allow the Justice Department and all of the states involved to call it a victory and the people actually believe that it is a victory because the sum is so large. But it can't be so large that JPM says, wait, let's take our chances with all of these authorities and go to court.


It also has to be ironclad. BP (BP) is still being crushed and obliterated by its deal with the Justice Department that BP thought got it off the hook for damages but, in retrospect, got them nothing at all. JPMorgan needs a deal that is so clean, that is so preemptive that you can't ever expect the Justice Department or a State Attorney General to file suit on old mortgages again. 


Do you think the authorities will go for that? Do you think they will say "OK, so maybe we haven't found everything they have done wrong, but we can risk that we have and let them off for all but future violations?" In that sense this would be like the global tobacco settlement where the tobacco companies mortgaged their future with the suing authorities to stay alive and in the end prospered. I am sure the critics of the banks will say this is a get-out-of-jail-free card and that Jamie Dimon has to go as part of it.


That's not going to happen either.


Nor does it matter that many of these mortgages that are faulty came from Washington Mutual and from Bear Stearns and not originally JPMorgan.  That's a total abstraction. We are way past the fault-no-fault stage.


So, JPM shareholders, don't freak out at the size. It is a fraction of what Bank of America's (BAC) been on the hook for. But don't rejoice yet, either. There are a lot of entities that want executive scalps as part of any deal. And a lot of others who don't want to hold JPMorgan harmless for any future infractions that were rooted in the dark past.


Call it fluid. But in the end call it certainty and certainty leads to a higher, not a lower, multiple.

Jim CramerJim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long JPM.

More from TheStreet.com

Sep 26, 2013 9:47AM

Corporate officers must be punished and the protections offered by corporate law must be changed.  If an individual commits a crime against society they must be punished.  As well when a corporation commits a crime the officials must pay as well. No more standing behind corporate law.  This activity is nothing less than organized crime.  A 16 year old black kid steals a televison he goes to jail.  A rich white guy in a suit steals 500 million through corporate safety they are fined 100 million.  Total BS. 

Sep 26, 2013 9:52AM
So JPM pays $11 billion and their past transgressions are off the table and they get to start with a clean slate?  It sure would be nice to know how much JPM made on all those past "infractions" -  Something tells me it was a hell of a lot more than $11 billion.  Once again, the elite commit a massive crime and get a slap on the wrist, and everyone in power laughs.  And they turn around and do it again and again, because the profits far outweigh the penalties.

I've always said, if the penalty for robbing a bank was a $1000, I'd be robbing banks all day, every day. 

It's really sad that Cramer thinks this $11 billion fine is a great thing.

Sep 26, 2013 10:22AM

And how about your part in the countrywide scam cramer ?  Remember how you shilled for mozilla on y our show as he was busy stealing hundreds of millions from the American taxpayer.

Where is your mea culpa ?
Sep 26, 2013 10:21AM
People rob banks 20 years in jail ......Bank robs people fined less than the amount stolen no jail time.

This equates to justice in the bankster/moneylender mentality .....
Sep 26, 2013 10:21AM
To big to fail, to rich to jail......
Die JP Morgan Die!!!!!
Sep 26, 2013 9:56AM

$11 billion is a chump change slap on the wrist for the "too big to fail" gang of thieves. 


so therefore it will happen

Sep 26, 2013 3:57PM
The Canadian side of Niagara falls is actually some what nice.  A lot of money has gone there over the past decade, really improved it.  Was kind of a dump but a few nice casinos, streetscaping, new attractions and improvements to Marine Land have really showed.  Was there over the summer with my family, trying to save money so we didn't have much of a vacation this year.  Will be worth it in June 2014 when the mortgage is paid off.
Sep 26, 2013 3:35PM

I guess Anthony Mirhaydari is Leaving MSN reports...


I kind of liked and enjoyed his columns...


Also what happened to the "NOW" format on the home page...??

Sep 26, 2013 2:31PM
Another little tid bit for thinking is the financing of all these developing economies.  Who supplied the funding to build many of these overseas factories that have destroyed the livelyhoods and dreams of so many Americans. You got it the FED, Bankers, and Politicians all joined together to destroy the American dream to conquer the world.  And if it all turns to salt as I suspect it might who do you think will be left holding the bag? Just what do people think these guys have been up to?  The real danger is as American consumers can no longer even buy the imported goods these overseas factories and their working populations will suffer, unemployment will return en masse, and more than likely these interloper corporations will be kicked right out of country or their guberments will just take them over ala Argentina.
Sep 26, 2013 1:03PM


Veteran Lender has a way of creating mental images with words.  Amazing really!



Sep 26, 2013 12:34PM

Well folks, Barry has joined us with his name calling and words of wisdom.Do you know the difference

between a super market and the stock market yet?Barry thinks Jimmy Buffett and Warren Buffett

are the same guy.

Sep 26, 2013 1:38PM
Sep 26, 2013 12:00PM

"WASHINGTON (AP) - Speaker John Boehner says House Republicans will not accept the temporary funding bill being considered by the Senate.

Boehner told reporters Thursday, quote, "I don't see that happening." Boehner, however, refused to say how the House would change it.

The Senate is expected to pass a bill this weekend that would fund the government beyond Monday, the last day of the budget year. House Republicans previously passed a bill to fund the government that also stripped funding for President Barack Obama's health care law.

The Senate is expected to remove the health care provisions from the bill and make other changes. Boehner said House Republicans want to avoid a partial government shutdown. But to do that, the House and Senate must agree on a bill by Tuesday."

When a few stubborn career politicians can stall and stagnate an entire nation over points best described as "lobby demands"... then it is time to haul lobbies out into the daylight and have the nation pulverize them. 90 million recovered careers with family-sustaining wages or the end of GOP in America. Go ahead John Boehner... throw THAT threat out to the House and see who still stands there collecting salary for Treason and Terrorism. 

Sep 26, 2013 1:42PM
Sep 26, 2013 2:41PM
There is every good reason why the Dow has declined from its high today of over 100 points ... isn't there?
Sep 26, 2013 1:37PM
countrywide was just one of this unfunny fake emotion faces hack....listen to him and lose.....that CNBC disclaimer should be warning enough..........
Sep 26, 2013 1:38PM

Barry, let me refresh your memory.Obama got Bin Laden.Your buddy Bush was rewriting

history back in Texas then.

Sep 26, 2013 1:08PM

EVIL CHRIS:We don`t want to mention that Clinton put100,000 fully funded cops on the streets.

Peace and prosperity with Dems is boring.We want wars,hate,bad education and sacrifice.Where`s

Dick Cheney when we need him?

Sep 26, 2013 12:58PM

4loveofmoney;IKE built the interstate highway system in the 50`s.Now the Repubs can

mention all the great things the Dems have done.I have a bridge to sell also.LOL.

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