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Nasser Khraishi
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I hold a PhD in Electrical Engineering (Control Theory) from Stanford University and a Masters Degree in Engineering-Economic Systems (now called Management Science and Engineering at Stanford). I have been fascinated by the stock market since I was 14 (that is 37 years ago at writing). It has... More
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  • A Smart Move By JPM 0 comments
    Oct 22, 2013 2:40 AM

    As the details of the tentative settlement between JPM and the Department of Justice are emerging, the one most striking piece of information in all headlines is the $13B settlement.

    Despite the large amount in question, which is in addition to the around $8B already levied against the bank, I truly think this is a smart move by Mr. Dimon.

    We do not have the final agreed upon terms, but if we find out that the agreement relieves the regulatory overhang, which was due to the many investigations into irregularities dating back to the sub-prime era, then JPM has just avoided the indefinite regulatory pain that haunted the likes of MO, PM, RAI, and BTI for decades.

    Further, a regulator, any of the far too many that regulate a bank, can levy fines or issue orders at their own discretion, and it is up to the bank to challenge such fines or orders. Hence, a continuing adversary relationship with your regulators can never be good for business.

    As for criminal investigations continuing under the agreement, well, this may be the bone thrown to the general public, and for that matter the regulator. The burden of proof is far different in a criminal investigation than it is for a regulatory action. The "beyond reasonable doubt" is not to be taken lightly. Additionally, a guilty verdict is normally subject to far more appeals than an innocent verdict would be. In essence, unless the prosecutor has a clear case of wrongdoing and with a worthy target, then it behooves them not to pursue a criminal case.

    Finally, given accounting standards, do not be surprised to find out that you and I are footnoting some of the fine, in the form of unpaid taxes due to permissible losses. Add to that the enormous balance sheet the bank has, with set-aside provisions for litigation and available cash in the tens of billions, and this will most probably go under the category of a "bad quarter" rather than a historic event.

    In essence, a very smart move, one that I would not be surprised if other banks copied.

    DISCLOSURE: JPM, GS and MO are in my trading-set.

    IMPORTANT DISCLAIMER: It is important that you understand and agree that all information provided in this newsletter rely on publicly available data and tools with no guarantees of quality or suitability for any purpose, and that I can be long or short in any of my trading-set equities, at any time, with or without regard to indicated trends and described analytics, and that I do not give buy or sell advice or any other financial recommendations, and that any and all actions based on this commentary are solely the responsibility of the reader.

    Disclosure: I am long JPM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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