Analysis: JPMorgan unbowed by SEC, but may show wounds later

NEW YORK Wed Jun 22, 2011 3:58am EDT

NEW YORK (Reuters) - JPMorgan Chase & Co's settlement with regulators on Tuesday could be just a small taste of the losses it faces from mortgage-linked securities and the damage they did to its storied reputation.

The bank agreed to pay just $154 million to settle charges it omitted key information when marketing complex instruments linked to home loans.

But the case is a reminder that, although JPMorgan backed away from the mortgage fiasco early, it built mortgage-related securities that could result in some $30 billion of claims against the bank, according to an analysis by Chris Whalen, co-founder of research firm Institutional Risk Analytics.

"The Street is worried about this big-time litigation," said Whalen.

JPMorgan shares rose on Tuesday as investors shrugged off the long been expected settlement, but the bank's shares have fallen more than 15 percent from their 52-week high in mid-February.

Of that $30 billion, about $18 billion comes from the dealings of Bear Stearns, Whalen said.

A JPMorgan spokesman declined to comment.

Jamie Dimon, JPMorgan's outspoken chief executive, is often feted in financial circles as a shining example for the industry. He successfully avoided many of the losses that hurt his rivals during the financial crisis.

But the Magnetar case is a reminder that, while JPMorgan might have been smarter than some of its rivals, it was not always kinder.

According to the U.S. Securities and Exchange Commission, the bank sold exposure to a portfolio of weak assets without telling clients that a hedge fund had helped pick many of those assets and would profit when they failed.

"JPMorgan was earlier to recognize the problems and protect their book than their peers. It wasn't that they didn't do many of the same things prior to that point," said Josh Rosner, an independent financial analyst at Graham Fisher & Co in New York.

LONG MEMORIES

Dimon recently complained publicly to Federal Reserve Chairman Ben Bernanke about the overall burden of regulation on his bank, a mark of how confident the executive is about his stature.

But the Magnetar case could mark a turning point in the bank's reputation, said Charles Geisst, a Wall Street historian and professor at Manhattan College.

"JPMorgan has tried over the years, and very successfully, to portray themselves as the good guys," said Geisst, listing the bank's role in bailing out the U.S. Treasury in the 1890s, attempting to stop panics in 1907 and the 1930s and restructuring Mexican debt a couple of decades ago.

"There's a long tradition of them at least appearing to do the right thing, until now."

Now, the bank's story includes allegations of misleading investors.

"This is exactly the opposite," Geisst added. "People have long memories for this type of thing."

(Reporting by David Henry; editing by Andre Grenon)

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