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Despite the reports of "stumbling blocks," it's widely expected that any day now, JPMorgan Chase (NYSE:JPM) will be putting the final touches on a massive $13 billion settlement with the U.S. government.
JPMorgan is far from the only bank to cough up hefty sums for crisis-era sins. It'll be hard for any of them to top Bank of America (NYSE:BAC), which has profusely bled cash thanks to the ill-conceived Countrywide acquisition. There will be more yet to come there, too. Fellow U.S. big-bank rivals Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) haven't been in the headlines nearly as much, but their payouts have also been in the billions. The many billions.
But the recent JPMorgan saga may be getting more attention, not only for the size of the settlement, but also for the politics that surround it. A once-chummy relationship between JPMorgan CEO Jamie Dimon and President Obama has reportedly cooled over the years, and there have been suggestions that the big bucks that JPMorgan has shelled are partly due to political retribution. Words like "stickup" and "shakedown" have been used. Admittedly, they're words that I've used.
But what's the reality of it? Are JPMorgan's shareholders really being punished for a tiff between Dimon and Obama? I took a look back at the history of the relationship -- through the eyes of the media -- to get a better idea.
October 2008: Writing for MarketWatch, David Weidner predicted that Dimon could be Obama's pick for Treasury Secretary:
Though no decision has been made, the rumor is that the Obama camp has already reached out to its first choice. The eye-popper is that the potential pick -- Jamie Dimon -- has signaled an interest in the job.
November 2008: CNNMoney put Dimon in a group it referred to as "Obama's business brain trust." The article echoed some of the same sentiments as Weidner:
After guiding his company through the financial crisis, Dimon, who Obama has consulted with in recent months, could give the candidate some serious industry credibility as a cabinet member.
February 2009: Dimon was spotted praising the President's plan to help stem home foreclosures. From Bloomberg:
"The plan is good and strong, comprehensive and thoughtful," Dimon, 52, said in an interview today. "I think it will be successful in modifying mortgages in a way that's good for homeowners."
November 2009: Rumors circulated again that Dimon could be in a position to take over as Treasury Secretary.
February 2010: Get this: President Obama defended the bonuses for some big Wall Streeters including Jamie Dimon. Per Bloomberg:
The president, speaking in an interview, said in response to a question that while $17 million is "an extraordinary amount of money" for Main Street, "there are some baseball players who are making more than that and don't get to the World Series either, so I'm shocked by that as well"... "I, like most of the American people, don't begrudge people success or wealth. That is part of the free-market system."
April 2010: Things started to get a little chippy on Dimon's side as he spoke out on the President's proposed "financial crisis responsibility fee." According to Reuters, Dimon quipped: "Let's all not call it a bank fee, and call it what it is, which is a punitive bank tax."
Not that it's too surprising that Dimon had such a reaction. As the White House described it, that fee would:
...be in place at least 10 years, but even longer if needed to pay back every penny of TARP. This will not be a cost borne by community banks or small firms; only the largest firms with more than $50 billion in assets will be affected. In fact, 60% of the revenue will come from the 10 largest financial firms.
January 2011: Proposed financial crisis fee or not, President Obama showed, in early 2011, that he wasn't totally against bankers or JPMorgan when he opted to name Bill Daley as his new Chief of Staff. Daley was plucked for the position from JPMorgan, where he was the Chairman of the bank's Midwestern operations.
This wasn't a popular move with some of the President's Democratic base. MoveOn.org railed:
With Wall Street reporting record profits while middle class Americans continue to struggle in a deep recession, the announcement that William Daley, who has close ties to the big banks and big business, will now lead the White House staff is troubling and sends the wrong message to the American people.
2012: If there was a true turning point to the relationship, this is probably where it happened. President Obama spent much of the year on the campaign trail, looking to secure a second term against perceived Wall Street fat-cat Mitt Romney. Being chummy with a banker would not have played well politically during that campaign.
Not that Dimon made it easy for Obama to be his chum during the campaign. The JPMorgan CEO was openly critical of the President, and even said, at one point, that he was "barely" a Democrat. This was also the year that the "London Whale" trading mess blew up in Dimon's face, and seriously sullied his reputation.
Banking analyst Brad Hintz quipped in mid-2012 that:
Since the crisis ended, Mr. Dimon has been characterized by the press as "Jamie the Great," a modern combination of Henry Ford, St. Patrick and Alexander Hamilton. And that is probably over. Dimon can no longer claim omniscience. He should leave that claim to the Pope.
Of course, if Obama was souring on Dimon and JPMorgan, in particular, he played his cards close to his chest. During an appearance on the TV show The View, Obama called JPMorgan "one of the best-managed banks there is," and said that Dimon was "one of the smartest bankers we've got."
2013: And here we are, discussing an epic $13 billion settlement that is not expected to let JPMorgan off the hook from other ongoing criminal investigations.
The verdict is in...
One thing that's become clear in the wake of the financial crisis is that, when it comes to the missteps that are leading to billions of dollars in fines and settlements, there were few -- if any -- major banks that managed to truly sidestep the problems. When we consider the amount that Bank of America has paid out, along with the scope of JPMorgan's operations, the litigation expense shouldn't be all that shocking. The bank itself wasn't caught off guard by this; though it's upped its legal reserves recently, it did already already have billions set aside for the purpose of settling crisis-era litigation.
There are two conclusions that I come away with from all of this. First, perhaps the surprise stemming from JPMorgan's legal payouts shouldn't be that it's getting hit with these payouts, but rather that it didn't get hit with the payouts sooner. With that in mind, if Dimon's relationship with Obama was involved here, there may be more of an argument that the Dimon/Obama love fest of years past postponed the day of reckoning.
But to say that a soured relationship led to a particular White House vendetta for Dimon and JPMorgan seems less likely. Sure, there's a good case to be made that the two had much better rapport in the past. However, it's never been a secret that Obama wanted to turn screws on the banks following the financial crisis, and we don't need to look further than that proposed 2010 "financial crisis responsibility fee" for evidence of that.
Further, a huge-fine scenario like we're seeing today wouldn't require an Obama grudge. Many (most?) of the regulatory agencies that have gone after JPMorgan are still in the process of trying to reclaim street cred after looking positively flat-footed during the crisis. Extracting massive fines may be viewed as one way to do that.
The second conclusion I can't help but draw from this is that investors in the next tier of big banks may want to brace themselves. For a good while, it seemed like all we heard about was Bank of America and its legal issues. Though it's still dealing with those issues to some extent, that's lessened. Now it's all about JPMorgan. Will JPMorgan now pass the torch to Wells Fargo or Citigroup? Or even US Bancorp (NYSE:USB) or PNC Financial (NYSE:PNC)
There have been signs that other banks -- Wells Fargo, for instance -- did indeed manage their exposure better, and won't have nearly the same magnitude of legal payouts. But I wouldn't get too comfortable with that quite yet. After all, not all that long ago, the same was being said about JPMorgan.