JPMorgan Cleans Up Two Big Headaches

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They say bad news comes in threes, but for JPMorgan Chase (NYSE: JPM  ) , this is a good news day, and it's arrived in twos.

The superbank just disclosed that the Federal Reserve has approved a previously suspended $3 billion stock buyback plan, and also that it's reached "an agreement in principle" with the Securities and Exchange Commission to settle mortgage-backed securities investigations related to its Bear Stearns unit: two headaches JPMorgan investors will be happy to begin putting behind them.  

No good deed goes unpunished
The stock buyback plan was suspended as a result of the now infamous London Whale trade, in which the bank lost at least $5.8 billion over the course of 2012 because of a botched bet in the derivatives market. JPMorgan suspended the buyback program in May, resubmitted a new capital plan to the Fed in August, and is now set to complete the $3 billion stock repurchase in the first quarter of next year. 

To add insult to an already injurious year, the bank was then slapped with a suit by New York State Attorney General Eric Schneiderman on October 1, charging the bank with mortgage-backed securities-related fraud committed by its Bear Stearns unit in the run-up to the financial crisis. The filing didn't specify damages sought, but it called out $20 billion of lost investor money.  

The real criminal action in that case was that all of the alleged fraud was committed before JPMorgan even owned Bear, which it bought at the behest of the Fed in March of 2008 to stave off imminent bankruptcy and the potential meltdown of the banking system. The suit was a strange way to say thanks.

Let's agree to disagree
An "agreement in principle" to settle the Bear case with the SEC is vague, but it likely means that JPMorgan won't be paying out anything near the $20 billion cited in Schneiderman's original filing, which nobody ever believed to be the case anyway. These suits typically get settled out of court, and almost always for well below what was initially asked for. And in this case, there wasn't even an official ask.

So it seems these two bits of news point toward a rosier overall picture for JPMorgan. The London Whale trading debacle isn't 100% cleaned up, but the majority of it probably is. And whatever final number the bank and the SEC agree on for the alleged Bear Stearns improprieties, JPMorgan will almost certainly be able to absorb them. They can't be any worse than $5.8 billion, can they?

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10/21/2016 4:00 PM
JPM $68.49 Up +0.23 +0.34%
JPMorgan Chase CAPS Rating: ****