With Madoff, DOJ Off Its Back, Will JPM's Legal Drama Slow In 2014?

2013 wasn't a pretty year for JPMorgan Chase and CEO Jamie Dimon but both are hoping this year is less about lawsuits and settlements and more about revenue and profits.

The bank is fresh off billions in legal deals including yesterday's $2 billion fine for ignoring Bernard Madoff ponzi scheme happening right under its nose. Late last year there was the giant $13B settlement with the Department of Justice where Dimon gave into Attorney General Eric Holder's tough demands.

Throw in a few hundred million for bad behavior in its credit card unit and another a $4.5 billion to settle representation-and-warranty claims as well as servicing claims on RMBS trusts; in all, JPM’s total credit and mortgage settlements since 2010 adds up to $26.4 billion.

Those kinds of numbers are what banks like Bank of America are accustomed to; in fact, that $26.4 billion is second to only BofA's tab. This year though JPM was fighting battles on all sides including with investors, regulators as well as some shareholders. Not to mention, JPM reported its first ever quarterly loss under Dimon's reign in third quarter 2013.

So will 2014 give the CEO the rest of JPM something to smile about? Some of that depends on how well the economy performs.

Despite all the bad news, JPM shares jumped about 35% in 2013 compared with about 30% for the S&P 500. BofA was up 37%, Citigroup and Wells Fargo were both up 34%.

So what's helping shares? The story around big banks over the last couple of years has been about cost cutting while has revenue has been mostly unimpressive. Generally investors like that banks are taking action, building capital levels ahead of schedule and doing so under a tough regulatory environment.

With that in mind JPM is among favorites of bank analysts who say the bank's market share is growing and that its addressed a great deal of its litigation issues."We see the greatest sources of potential earnings upside being driven by higher loan growth and capital markets," say Barclays analysts in a bank outlook report.

The analysts add, "A more positive view on the stock would be warranted from accelerating loan growth, higher capital markets activity and a more optimistic view on the global economy. In that case, 2015 EPS could go to $6.95 which would warrant an $80 upside price on 11.5x."

What's more JPM still has room to cut expenses; it's one of the only big banks without an official cost cutting program in place.

Expenses will be among the issues to watch for come Tuesday, January 14, when JPMorgan Chase (and Wells Fargo) kick off large-cap bank earnings. Legal costs will be another.

In the third quarter, JPM said it was booking $9.3bn in firm-wide legal expenses and that its litigation reserve stood at$23B. Barclay says the figure could be cut in about half due to recent settlements.

"As 2014 progresses the majority of outstanding [regulatory] questions should be answered. We suspect this will allow the banking industry to adjust pricing for the new capital, liquidity and compliance/legal environment," Barclays analysts say.