FORTUNE — Call him the Teflon Dimon.
On Thursday, the day after news broke that JPMorgan Chase may have to pay the government at least $11 billion in fines — the largest single financial fine in history — its shares rose. Perhaps one of the biggest oddities of JPMorgan’s past year and a half is how the stock has done. Despite a huge trading loss and an explosion of legal problems, shares of JPMorgan (JPM) have climbed higher and higher.
Why haven’t JPMorgan and Jamie Dimon been forced to take their lumps? Even for JPMorgan, $11 billion is still a lot of money (and reports on Friday suggested the bank might even be forced to pay more) — roughly half of what it is projected to make in all of 2013. And given all the problems JPMorgan has had recently, you can certainly make the case, as some have, that it’s the prime example of why big banks are impossible to run. What’s more, too-big-to-fail banks in general are under fire, facing a raft of new regulations.
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And yet none of that seems to matter, at least to shareholders, who besides bidding the stock up, overwhelmingly voted to keep Dimon in the firm’s top two jobs (he’s chairman and CEO) earlier this year. Here’s why investors still love JPMorgan:
JPMorgan is likely to be one of the top bankers on Twitter.
It’s just one deal, but it says a lot about what Dimon has been able to accomplish. For a time, there was talk on Wall Street that commercial banks, despite their cash, would never be able to muscle their way into the most lucrative parts of investment banking, namely initial public offerings and mergers and acquisitions. But JPMorgan has done just that. The bank was the co-underwriter of Facebook (FB), right below Morgan Stanley (MS), and now it looks to be getting the same lucrative slot on Twitter, right below Goldman Sachs.
It makes a lot of money.
JPMorgan is expected to earn $22 billion this year, before the latest fines, making it the most profitable bank in the U.S. That translates to an expected return on equity (which is a measure of profits compared to the amount of money it has invested) of 11.3%, compared to an ROE of 10.6% at Goldman Sachs (GS), which until the financial crisis was the envy of Wall Street. Dimon has seized that crown as well.
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It has a lot of capital.
The $11 billion JPMorgan will have to shell out is a lot of money. So was the $6 billion that it had to swallow from the London Whale trading loss. And it has already agreed to pay $2 billion in fines. And yet none of this has even come close to raising the possibility that JPMorgan would run out of money. JPMorgan has nearly $150 billion in capital, money that it can use to cover losses and fines. And anyway, its expected $22 billion in earnings means JPMorgan will be able to pay the fine and still add to its capital base with the extra earnings. Capital is up roughly $50 billion more than five years ago, though capital was measured slightly differently back then. So like other banks, JPMorgan looks safer than it did coming into the financial crisis.
And it’s big.
Banks tend to do well in economic recoveries. That should be especially true for JPMorgan, the biggest bank around. While rivals had to shrink following the financial crisis, JPMorgan continued to expand, growing its assets by more than a third in the past five years. And while we can debate whether too big to fail still exists, it’s hard to imagine that the government wouldn’t step in with some assistance if JPMorgan were to run into trouble. As such, risk-averse depositors have flocked to JPMorgan, giving the bank a bigger pot of cheap financing. That should become even more valuable as interest rates rise.
That being said, rising interest rates aren’t a free ride either. Like at other banks, JPMorgan is likely to have losses on its large bond portfolio that will shrink capital. What’s more, the view that the bank has good earnings dented by trading losses and fines isn’t totally correct. JPMorgan has used cost-cutting and a number of accounting maneuvers to keep its earnings rising. But that will only get you so far. Eventually, the bank will have to boost sales. And given that it’s so big, that may be hard to do.
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“It’s hard to see how a bank a seventh the size of the national economy can continue to see significant growth without leveraging up,” says Josh Rosner, who runs research firm Graham-Fisher, and was one of the few who predicted the financial crisis.
For now, though, investors still do.