Were Bear Stearns, WaMu a Good Deal for JPMorgan?
Oct. 21 (Bloomberg) -- Bloomberg’s “Market Makers” anchor Erik Schatzker and David Herro, chief investment officer at Harris Associates examine the tentative agreement by JPMorgan to pay a $13 billion settlement to end civil claims over its sales of mortgage bonds. They speak on Bloomberg Television’s “Bloomberg Surveillance.”
The record penalty for jpmorgan, $13 billion to settle with the u.s. government amah and criminal prosecution remaining on the table.
We are joined by him -- by erik schatzker who has been following the big banks including jpmorgan for years.
What is not clear is who breathes a sigh of relief, jamie dimon, eric holder, or neither?
Jamie dimon certainly breathing a little bit of a sigh of relief.
Forget the criminal stuff for a moment.
It is not really clear if jpmorgan as a company will be charged criminally.
This will remove all this up -- this will move all the civil claims off the table regarding mortgage backed securities.
Most of them having to do with the bear stearns and washington mutual.
That is why jamie dimon has been quietly griping about the fairness and reasonableness of the settlement because, he claims, the government put a gun to my head and told me i had to buy them.
Why are they fighting this?
-- aren't they fighting this question might why don't they say, let's go to court?
I don't think jamie dimon would have met two hours with error: if they were not fighting it.
But they don't have a lot of leverage.
They could complain and ask the question, is this fair, is this reasonable -- the twitter question veered of course, you are asking the right questions.
Maybe the best question of law is to say, knowing where -- what he knows now, would jamie dimon have bought bear stearns and washington mutual under the same terms?
Remember, he paid less than $3.5 billion for both of those firms.
Rented, in the middle of 2008, they looked like awfully weak institutions, but they added a great deal to the investment bank and to jpmorgan's consumer franchise.
Wamu at hundreds of branches, it increased the credit card business.
Look at this chart you got up here.
On radio -- it is real simple on radio.
Annual profit, $15 billion then and $21 billion now.
Is this a slap on the wrist, 13 billion dollars?
It depends on whether you think while move -- wamu or bear stearns have added value to jpmorgan.
They don't break it out.
You can't tell what is a treatable -- attributable to bear stearns and wamu.
If you straight lined the rate at which jpmorgan was increasing book value back in 2007 to today, you would end up -- and compare it to the book value jpmorgan has now, there is a difference of $36 billion.
A lot of that $36 billion is the chernobyl -- attributable to them.
Is it worth what they got out of the businesses?
I asked and alice -- an analyst last night and he said in financial terms, yes -- if the government had told timing don -- jamie dimon all being angst i will put you through, he would have said no.
We own it in some of our domestic funds.
We do own it.
When you talk to managers of your domestic funds, will they continue to own jpmorgan and did a fine long-term value?
I think the case for jpmorgan is still intact.
It is a good, quality bank.
In spite of some of the issues you have had with some of the legal problems.
If you look at the franchises and if you look at the rate at book value creation over time, this is a really good financial risk.
It brings up the question, how much longer can it be?
According to investors that we have spoken to, and analysts, they agree with aid.
Jamie dimon's leadership is intact.
Even though it would impact the bottom line, he is still solid.
Here is a key point to make.
If this settlement resolves the civil issues, then you can begin to look at jpmorgan's operating business and assume -- and make some assumptions about how much money it is going to make going forward.
Because up until now, up until the past couple of years, there has been a gigantic dark cloud.
We had no idea how much it would cost them.
Work through what he just said because it is key.
They stole these franchises in crisis -- 3 billion dollars, you said?
Then you have the add-on fees.
Let's say it goes up to $20 billion.
Erik schatzker same generating $40 billion out of profits -- whatever.
Right now on a financial basis, they are making money on bear stearns in washington, right?
It looks like it.
I have not looked at the numbers but if that arithmetic is correct -- you have to take the present value of all future profits -- which is -- ginormous is the right word.
It is a supermarket bank.
Do other supermarket banks outside of the united states still look at jpmorgan as what they want to be?
I think it is all coming to an end.
People are focusing on their little areas.
One of the best examples of a bank -- hsbc.
A great franchise in hong kong.
They were based in the u.k. and tried to move back to hong kong.
But they have been very poor at trying to become a supermarket.
We all remember the household finance debacle of seven or eight years ago.
Essentially, ceo's he make them --dumb decisions at some point.
Absolute power corrupts -- you can speak to this, erik, jamie dimon used to be president obama's favorite banker, and now this.
The wheel of fortune has a way of spinning.
You can be on top forever.
Let's not forget that the london whale trading crisis had nothing to do with bear stearns and washington mutual.
Those folks had been at jpmorgan.
The chief investment officer was extant long before bear stearns and wamu ever arrived.
To the degree jpmorgan had suffered in the public eye and had become unpopular, some are self-inflicted wounds that have nothing to do with bear stearns and wamu.
Does this satiate the public appetite for putting an end to the crisis?
It already seems that bank of america is already getting hit with penalties looking to be more in the $4 billion range, according to our reporting.
Washington mutual and bear stearns packaged a lot of mortgage backed securities that since proven questionable and countrywide and bank of america together probably did more, which would explain probably why fhfa is probably looking at more.
We are going to have robert kaplan talking to us about
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