Who’s paying for JPMorgan’s Settlements?

It’s sort of funny to read that JPMorgan “plans to keep overall compensation roughly flat this year from last year, in a sign that employees will feel at least some pain from the bank’s recent legal settlements.” Some quick stupid math:

  1. JPMorgan’s recent legal settlements, if by “recent” you mean “within the last week,” total to $17.5 billion.1
  2. That is just about equal to JPMorgan’s estimated net income for the year.2
  3. JPMorgan’s compensation and benefits bill last year was about $30 billion, so I guess this year it will be around $30 billion.

So settlements equal to around 100 percent of net income reduced compensation by about zero percent. “At least some pain,” then, if you include “absence of increased pleasure” in your definition of pain. There is probably a Greek philosophy about that.

That is not a fair way to do the math, of course. Those $17.5 billion of settlements didn’t drop from the sky on an unsuspecting JPMorgan; the bank has been reserving for them and their friends for years, smoothing the effect of the settlements both on net income and on compensation. Each of the past week’ssettlement announcements contained words to the effect of “we are already reserved for this stuff so don’t worry,” and no one did; JPMorgan’s stock is higher today than it was before the settlement announcements.

Over the last five years JPMorgan has made about half a trillion dollars in net revenues. Of every dollar in revenues, about 5 cents went to legal expenses and reserves ($25.7 billion in all), 29 cents to employees, and 18 cents to shareholders.3 This year so far the litigation amount is above the five-year average (around 11 percent), and so is the employee amount (around 32 percent), while the shareholders are roughly in line with the average, though down from last year: Net income is 17 percent of revenues for the first nine months of the year (and down 19 percent from the same period last year), and estimated to be around 19 percent for the full year (down 14 percent):

Source: My own two hands and Google Docs.

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