JP Morgan spent $9.3 billion in legal expenses last quarter, which amounted to 39 percent of its revenue. It’s the company’s biggest expense, more so than staff checks, paying monies on the rental spaces for the more than 5,600 retail branches and purchasing securities.
Now, think for a second, what your largest business expense is? When it comes to what your business’ largest cost should be, it needs to reflect what your company does. For instance, at Goldman Sachs’ the biggest expensive is compensation and benefits to its talent, or regulatory issue. Apple’s biggest expense was in sales, employees and new stores. For General Motors, the biggest expense was the manufacturing of cars.
JP Morgan, for the first time ever, released information about how much it has spent for its legal issues. Since 2010, the company spent $31 billion on legal issues, $8 billion on settlements with another $23 billion set aside for any impending legal problems. This is nearly half of the company’s earnings for the same timeframe. These reserves may be given back to its stockholders if legal fees and settlements are less than anticipated.
There are many issues JP Morgan is dealing with – Madoff Ponzi scheme, London Whale and Libor – all of which could lead to the biggest bank fine of $11 billion, topping the $3.7 billion the company paid so far this year.
Bank’s Avoidance May Be Reflection Of Better Economy
The bank was able to avoid the reporting of $932 million loss because it saved $542 million by covering the costs of impending default loans. This avoidance is a reflection that the economy in the United States is improving and not as many folks are defaulting on their loans. However, it’s a reflection that the bank is trying to stave off any issues with prosecutors and regulators.
The financial sector initially did not mind the company’s illegal behavior when it was profitable. However, the tune could soon change if there are too many quarters where losses are incurred.