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Jim Cramer: When $11 Billion Is Cheap

Editor's Note: This article was originally published at 7:02 a.m. EDT on Real Money on Sept. 26. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money.

NEW YORK ( Real Money) -- In what world would an $11 billion settlement be cheap? How about in the world of banking?

If JPMorgan Chase (JPM) can actually get the federal and state authorities to sign a piece of paper saying they can only sue the bank for future infractions in the mortgage market and not past ones, then JPMorgan will have gotten a huge bargain. It could be fabulous for the bank

The reason? Two words: normalized earnings. That's right. If we could see what JPM could earn excluding all of these cases, then we could build a model. If we could build a model we might be able to find out what JPMorgan Chase is worth on an earnings basis. Until then, we are stuck in some world where we don't know what this bank, the envy of the industry, can really earn. Right now the Street is clustered at around $6 in earnings power for next year.

But what would you pay for that stream? What would you pay for that stream if you knew it came attached to a buyback of some size? What would you pay for it if you knew that it contained several dividend hikes, hikes that were decided upon by the bank's board itself? What could that be worth? How about a 10 multiple? Eleven? Maybe even a 12? How about in a rising-rate environment, one where the 10-year Treasury goes to 4%, adding about $4 billion to the bottom line? How about where you take out the possible $4 billion in legal costs that JPMorgan Chase might end up paying annually as this insanity of nationwide court battles drags on?

That $11 billion dollar price tag is dirt cheap when you consider all of the positives that could come out after the payment, especially when you know that JPMorgan has a fortress ATM machine that can spit out fortress dollars to pay Fort Knox.

Now it's tough to come up with a figure. The number has to be substantial enough to allow the Justice Department and all of the states involved to call it a victory and the people actually believe that it is a victory because the sum is so large. But it can't be so large that JPM says, wait, let's take our chances with all of these authorities and go to court.

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