JPMorgan’s Profit Is Bruised Ever So Slightly by Madoff Settlements

Underscoring just how little record penalties affect a bank’s bottom line, JPMorgan Chase reported $5.28 billion in fourth-quarter profit today, down 7.3 percent from the same period a year ago. Led by Chief Executive Officer Jamie Dimon, the nation’s largest bank said last week that the cost of settlements tied to Bernie Madoff’s Ponzi scheme reduced net income for the quarter by $850 million.

Shares of JPMorgan are trading higher on the results, which beat analysts’ expectations. The stock returned 29.9 percent over the 12 months through Jan. 14. That’s ahead of the Standard & Poor’s 500-stock index, at 27.4 percent, and behind the KBW Bank Index, at 35.4 percent. JPMorgan spent more than $23 billion on legal settlements in 2013, in areas from mortgage fraud and energy market manipulation to money laundering controls and foreclosure practices. That’s real money, which led to the first-ever quarterly loss of Dimon’s tenure in October, but as far as Wall Street is concerned, it’s a perfectly acceptable cost. Of the 43 analysts tracked by Bloomberg, 31 recommend buying JPMorgan stock, 10 say to hold, and just two say to sell.

In the Madoff settlement, JPMorgan admitted it ignored warning signs that the money manager was running a Ponzi scheme for 15 years, as Madoff’s fraud soared into the tens of billions of dollars. Essentially, the bank’s sprawling operation was large enough for Madoff to hide in: Employees in different corners of the company registered concerns over the years, but nothing came of it. “The bank connected the dots when it came to its own profits but not when it came to its own legal obligations,” U.S. Attorney Preet Bharara said in announcing the settlement.

“We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time,” Joseph Evangelisti, a spokesman for JPMorgan, said in an e-mail to Bloomberg. “We do not believe that any JPMorgan Chase employee knowingly assisted Madoff’s Ponzi scheme.”

On a conference call after the earnings announcement today, Dimon told journalists he couldn’t say when the bank’s battle with regulators would be finished. “I’m going to take a rain check on that,” he said. Federal authorities are examining the bank’s hiring practices in Asia and other activities, as this handy chart from the New York Times details.

In May, Dimon was reelected to the JPMorgan board, which he chairs, with 98 percent of the vote.