$13bn settlement, JP Morgan an insider point of view

JP Morgan Chase tower

JP Morgan Chase tower (Photo credit: Wikipedia)

The attention that has been drawn to the financial sector in recent years has been significant, and it is seemingly understandable that the industry has been harshly criticized and remains under scrutiny by many skeptics. However, those who work in the industry understand that a great deal of change has taken place in the financial sector in recent years, and this change may strongly indicate that seasons have changed in the industry. The $13 billion settlement that JP Morgan Chase has tentatively agreed to is a clear signal to outsiders and insiders alike that there is a strong desire by insiders to make amends for past indiscretions.

The Settlement Details
While some critics state that a $13 billion settlement that JP Mortgage Chase has tentatively agreed to is seemingly insignificant in the grand scheme of things, the fact is that this sum of money effectively is the equivalent of about 61 percent of the company’s 2012 profits. The settlement comes on the back end of an intense government investigation regarding activity that ensued before the 2008 meltdown and that involved JP Mortgage, Washington Mutual and Bear Stearns.

How the Funds Will Be Applied
It is important to note how the settlement funds will be used to determine how beneficial this settlement is for the company’s image and the image of the industry as a whole. A large portion of the funds will be utilized to compensate investors who were financially affected by investments they made on mortgage securities. The stocks for many of these companies plunged during the financial meltdown, and numerous investors felt the financial sting. Some continue to feel the effects of the meltdown. In addition, a portion of the funds will be applied to homeowners who are continuing to struggle, and the remaining funds will be a penalty or fine based on the actions of the company.

An Insider’s View
While the huge settlement that JP Morgan Chase has agreed to pay has a significant effect on the image of the company and on the financial industry as a whole, it is important to consider that the penalty may be too harsh. Critics may say that it is not harsh enough, but the way the funds will be applied is worthy of scrutiny. For example, a large portion of the funds will be applied to investors and homeowners who were affected by the company’s actions. Clearly, the company made some unethical actions prior to the meltdown, but investors and homeowners alike must take some responsibility for their actions as well. For example, investors should thoroughly research companies and understand the investments they are making before a financial commitment to a specific company. Some homeowners likewise may have made irresponsible or uneducated decisions about the loan structure they were applying for or the size of the home they were purchasing.

While there are two sides to every issue and this issue is certainly one that has many gray areas that are worthy of further consideration, one thing is certain. The JP Morgan Chase settlement is one that is a clear indication to Wall Street and the financial sector in London that this company as well as the industry as a whole is making amends and is ready to move forward on more secure, responsible footing.

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