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What did $13 billion just buy J.P. Morgan?

JP Morgan Chase & Co headquarters in New York.

JPMorgan Chase will pay $13 billion in a landmark deal with the U.S. federal government and states to settle claims it misrepresented the mortgage investments it sold. It’s a staggering sum, billions more than other companies paid out in settlements involving the Gulf oil spill and prescription drug fraud.

It might actually be a pretty good deal for the bank.

Deep inside the lair of JPMorgan chairman and CEO Jamie Dimon, there have been meetings and more meetings, with the board, top execs, all focused on one question: Will they get their money’s worth from this settlement? Observers say they might.

“The ability to be able to address this up front now, get beyond this uncertainty, even if it’s a large amount, actually has a value to it,” says Cornell Law School professor Charles Kenji Whitehead, formerly a high-level banking attorney. “The value is that you can now begin to focus on running the business and turning to any other problems that you might have to address.”

Then there’s the company’s reputation with customers and clients. That goes into the calculation of what business leaders call goodwill, which has its own line on corporate balance sheets. A big settlement is a bit like ripping off a bandage, getting all the pain out of the way at once.

“It gets it out of the news and they go on and continue to do business, so it’s probably a smart move for them,” says consultant Elliot Schreiber, who previously worked in strategy and communications for a number of large corporations.

Companies often calculate that they’d rather suffer a couple days of bad press, as opposed to months more coverage of a drawn-out legal fight.

The settlement doesn’t cover all of JPMorgan’s legal troubles, which include questions about its energy trading and Chinese business dealings. But the $13 billion does take care of a big chunk of its housing crisis problems. And the final price tag may be smaller.

“The vast majority of settlements are deductible,” says Robert Wood, a tax attorney specializing in payouts like these. “Unless JPMorgan has bargained away that, they probably can deduct a lot of it.”

That means a chunk of the settlement could effectively be paid by you and every American taxpayer. Don’t hold your breath for a heartfelt thank you message next time you’re at a Chase ATM.

Mark Garrison: Deep inside the lair of JPMorgan CEO Jamie Dimon, there have been meetings and more meetings, with the board, top execs, all focused on one question: Will we get our money’s worth from this settlement? Longtime bank lawyer and Cornell law professor Charles Kenji Whitehead says they might.

Charles Kenji Whitehead: The ability to be able to address this up front now, get beyond this uncertainty, even if it’s a large amount, actually has a value to it. And the value is that you can now begin to focus on running the business and turning to any other problems that you might have to address.

Then there’s the company’s reputation with customers and clients. That appears on corporate balance sheets under “goodwill.” Consultant Elliot Schreiber previously led corporate communications for major firms. He says a big settlement is a bit like ripping off a bandage, getting all the pain out of the way at once.

Elliot Schreiber: People, kind of, are a little shocked, but it gets it out of the news and they go on and continue to do business, so it’s probably a smart move for them.

Better a couple days of bad press than months covering a drawn-out legal fight. The settlement doesn’t cover all of JPMorgan’s legal troubles. But the $13 billion does take care of a big chunk of its housing crisis problems. And the final price tag may be smaller. Robert Wood is a tax attorney specializing in payouts like these.

Robert Wood: The vast majority of settlements are deductible. Unless JPMorgan has bargained away that, they probably can deduct a lot of it.

Yes, that means a chunk of the settlement could effectively be paid by you and every American taxpayer. Don’t hold your breath for a heartfelt thank you message next time you’re at a Chase ATM. In New York, I'm Mark Garrison, for Marketplace.

About the author

Mark Garrison is a reporter for Marketplace and substitute host for the Marketplace Morning Report, based in New York.
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I have a couple of issues with this article. First, goodwill that appears on business balance sheets is the result when one company acquires another and is calculated as the difference between the purchase price and the market value of the individual assets acquired. One possible reason for this excess might be the acquired company's "reputation with customers and clients," but the article makes it sound like JP Morgan Chase could now add a line called "goodwill" to their balance sheet somehow connected to this settlement. Hardly true.

Second, I'm tired to comments that we taxpayers in effect pay for the taxes avoided on any expense deducted by someone else. If I make a contribution to a charity of $100, sure, I save some taxes but it hardly results in other taxpayers covering the difference. I know, I know, overall if my taxes go down because of a deduction, lawmakers will have to raise taxes on others to balance the budget. Or something like that. Obviously, if you guys think that's the way Washington works, you've been paying no attention whatsoever.

I suppose you can say my tax deduction adds to the deficit (unless, of course, the charity uses my contribution to hire an employee, who pays taxes, and spends money at a business which pays taxes, etc. etc.). Besides, if the feds hadn't extracted this $13 billion, our deficit would be a whole lot bigger, even after taking the deduction into account. All in all, this is a big net win for us taxpayers.

I have a couple of issues with this article. First, goodwill that appears on business balance sheets is the result when one company acquires another and is calculated as the difference between the purchase price and the market value of the individual assets acquired. One possible reason for this excess might be the acquired company's "reputation with customers and clients," but the article makes it sound like JP Morgan Chase could now add a line called "goodwill" to their balance sheet somehow connected to this settlement. Hardly true.

Second, I'm tired to comments that we taxpayers in effect pay for the taxes avoided on any expense deducted by someone else. If I make a contribution to a charity of $100, sure, I save some taxes but it hardly results in other taxpayers covering the difference. I know, I know, overall if my taxes go down because of a deduction, lawmakers will have to raise taxes on others to balance the budget. Or something like that. Obviously, if you guys think that's the way Washington works, you've been paying no attention whatsoever.

I suppose you can say my tax deduction adds to the deficit (unless, of course, the charity uses my contribution to hire an employee, who pays taxes, and spends money at a business which pays taxes, etc. etc.). Besides, if the feds hadn't extracted this $13 billion, our deficit would be a whole lot bigger, even after taking the deduction into account. All in all, this is a big net win for us taxpayers.

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