JPMorgan Chase’s Mounting Legal Bills

One sign that JPMorgan Chase (JPM) is doing well: Everyone’s trying to sue them. Bloomberg notes that a Madoff trustee is after them for $6.4 billion. Also, Lehman Brothers is on the warpath for $8.6 billion.

So far this year, JPM has reported $5.2 billion in legal costs. The company had very good earnings for the third quarter, but it would have been even greater if they hadn’t had to set aside a big chunk of change for lawsuits.

Linda Sandler picks out some interesting facts: In their latest 10-Q filing, the bank used the word “litigation” more than 50 times. The potential losses for JPM come to 13% of their book value. For Bank of America (BAC) the figure comes to 17%.

Naturally, this is a big headache for banks. I’m sure JPM wouldn’t be sued if they weren’t so successful. The difficulty is how to value these suits. Obviously, the bank thinks most of these suits are bogus and therefore shouldn’t cost them a dime. Of course, that decision isn’t up to them; it’s up to the courts. Still, they need to disclose the potential costs however frivolous.

JPM reports earnings one week from tomorrow. The consensus on the Street is for 98 cents per share. In my opinion, that’s laughably too low. I understand why analysts want to low-ball their estimates. Personally, I’d be surprised if JPM earns anything less than $1.10 per share.

In other JPM news, Obama will name William Daley, one of the bank’s big shots, as his new Chief of Staff.

Posted by on January 6th, 2011 at 1:08 pm


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