JPMorgan Chase & Co. generated nearly half a billion dollars in profits from serving Bernie Madoff, according to data compiled by a well-known finance professor.
JPMorgan Chase & Co. generated nearly half a billion dollars in profits from serving Bernie Madoff, according to data compiled by a well-known finance professor.
The bank served as Mr. Madoff's vault starting around 1992, when the Ponzi schemer opened an account in which he deposited clients' cash. He tapped it periodically to meet investor redemptions. At its peak in 2008, the account had mushroomed to $5.5 billion, according to federal court documents.
That translates to $483 million in after-tax profits for the bank for holding the Madoff funds, based on the net interest margin levels reported by JPMorgan Chase over the years and other factors, according to research by Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette.
“[I] suspect that JPMorgan Chase's shareholders now wish that [Madoff] put his deposits in a competitor's bank,” Mr. Wilson wrote.
The report could provide useful fodder for the many former Madoff customers seeking a deep set of pockets to help them recoup losses. Howard Kleinhendler, a lawyer representing an investor who has sued JPMorgan Chase in federal court in Manhattan, said Mr. Wilson's analysis “sounds right” and added that the size of the deposits means Mr. Madoff was an important customer and bank executives had to know something was amiss.
“There were people high up in the bank keeping an eye on this,” he said.
JPMorgan moved last month to dismiss the suit from Mr. Kleinhendler's client. “Case law clearly establishes that a bank is not liable simply because a fraudster uses a checking account to defraud third parties,” the bank's lawyer wrote.
Even Mr. Wilson took pains to say that it isn't at all clear that JPMorgan Chase did anything wrong in serving as Mr. Madoff's vault. “Few would say that the vendor who sold Mr. Madoff a hotdog on the street was doing anything wrong,” he wrote.
A JPMorgan Chase spokesman declined to comment.