by Ed Elfenbein | January 6, 2011 4:30 pm
One sign that JPMorgan Chase (NYSE: JPM) is doing well: Everyone’s trying to sue them. A Bernie Madoff trustee is after them for $6.4 billion. Also, Lehman Brothers is on the warpath for $8.6 billion.
So far this year, JPM has reported $5.2 billion in legal costs. The financial stock has a very good earnings for the third quarter but it would have been even larger if they hadn’t have set aside a big chunk of change for JPMorgan Chase lawsuits.
In their latest 10-Q, they used the word “litigation” more than 50 times. The potential losses for JPM come to 13% of their book value. For Bank of America (NYSE: BAC) it comes to 17%.
This is obviously a big headache for banks. I’m sure JPM wouldn’t be sued if they weren’t so successful. The other difficulty is how to do value these suits. Obviously, the bank thinks most of these suits are bogus so they shouldn’t cost a dime. Of course, that decision isn’t up to them; it’s up to the courts. Still, they need to disclose the potential costs however frivolous.
JPM reports earnings one week from tomorrow. The consensus on the Street is for 98 cents per share. In my opinion, that’s laughably too low. I understand why analysts want to low-ball their estimates. Personally, I’d be surprised if JPM earns anything less than $1.10 per share.
In other JPM news, Obama will name William Daley, one of the bank’s big shots, as his new chief of staff.
Ed Elfenbein is editor of Crossing Wall Street, a Web site about stocks and the market designed to help individual investors. Check out his free Buy List of stock recommendations.
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