DBRS Confirms JPMorgan Chase After Mortgage Settlement – Senior at A (high), Trend Remains Stable

DBRS, Inc. (DBRS) has today confirmed its ratings for JPMorgan Chase & Co. (JPMorgan or the Company), including its A (high) Issuer & Senior Debt rating following the announcement of a $13.0 billion settlement with various governmental parties. The announced settlement is in addition to other legacy residential mortgage related matters including the $4.5 billion private label investor trustee settlement and $1.1 billion GSE settlement announced within the past month.

DBRS’s confirmation reflects the fact that the firm had already reserved against these legal matters. As a result, the settlement payments will not adversely impact earnings or capital; both of which are ample. DBRS sees this widely-anticipated settlement as pulling forward losses from primarily legacy Bear Stearns and Washington Mutual issues in an effort to put these issues behind the Company.

While the scale of this litigation expense is well beyond DBRS prior expectations, it should be viewed in the context of the Company’s $10+ billion in quarterly adjusted income before provisions and taxes (IBPT). Moreover, JPMorgan disclosed a $23 billion litigation reserve at the end of 3Q13, as well as a $2.2 billion mortgage repurchase reserve. In 3Q13, JPMorgan noted that the range of possible losses beyond current litigation reserves was $5.7 billion.

DBRS is mindful that the Company continues to negotiate the terms of other settlements and is also the subject of a criminal investigation by the Department of Justice. Going forward, DBRS analysis and surveillance will be focused on the medium and longer-term impact of ongoing litigation on the Company’s transactional and customer businesses. JPMorgan’s ratings would likely be pressured if it is unable to settle its legal liabilities reasonably and move out of the legal and media cycle, which could impair its reputation and ability to transact business over time. The ratings will remain Stable, however, if the Company is able to navigate this difficult period successfully without impairing its business fundamentals and franchise strength.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organizations. Other applicable methodologies include the DBRS Criteria – Intrinsic and Support Assessments, DBRS Criteria: Bank and Bank Holding Company Trust Preferred Securities, DBRS Criteria: Rating Bank Subordinated Debt & Hybrid Instruments with Discretionary Payments and DBRS Criteria: Rating Bank Preferred Shares & Equivalent Hybrids. These can be found at: http://www.dbrs.com/about/methodologies

[Amended on December 29, 2014 to reflect actual methodologies used.]

The sources of information used for this rating include the company documents, the Federal Reserve, the Federal Deposit Insurance Corporation and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is an unsolicited rating. This credit rating was not initiated at the request of the issuer and did not include participation by the issuer or any related third party.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: William Schwartz
Rating Committee Chair: Alan G. Reid
Initial Rating Date: 22 June 2001
Most Recent Rating Update: 21 December 2012

For additional information on this rating, please refer to the linking document under Related Research.