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Analysts Give JPMorgan a Pass on Unknown Legal Expenses

Stocks in this article: JPM

RBC Capital analyst Gerard Cassidy increased his estimate of legal expenses to $1.6 billion from $500 million but made no changes to his earnings estimate.

That's because the analyst does not consider legal expenses to be a core earnings item. Analysts tend to exclude items that tend to be non-recurring or unsustainable from their earnings estimates but they do not always agree on what is core and what is non-core.

Charles Peabody of Portales Partners in contrast seems a lot more concerned about the litigation risk at JPMorgan.

The bank since 2007 has likely accumulated $22 billion in legal expenses, almost the equivalent of a full year of profits, according to Peabody.

This year litigation costs could be as high as $5 billion for JPMorgan, according to Peabody, if the company settles the mortgage-backed securities lawsuit from the Federal Housing Finance Agency and enters into multiple settlements over the "London Whale" hedge trading debacle with the Securities and Exchange Commission, the Department of Justice and UK authorities.

Peabody is also concerned the SEC might try to extract an "admission of guilt" from JPMorgan over the London derivative trades.

"Regulators and administration want to remove the benefits of being big," he said in an interview with Bloomberg News. "Now if you are too big to manage they are going to raise the cost of litigation for being too big to manage."

-- Written by Shanthi Bharatwaj in New York.

>Contact by Email.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
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