Estimating JP Morgan Chase’s Profits from the Madoff Deposits

25 Pages Posted: 25 Aug 2009 Last revised: 30 Jan 2010

See all articles by Lou Davis

Lou Davis

University of Louisiana at Lafayette - College of Business Administration

Linus Wilson

University of Louisiana at Lafayette - College of Business Administration

Date Written: January 28, 2010

Abstract

JP Morgan Chase had deposits from Bernard L. Madoff’s investors totaling $5.5 billion at one point in 2008. The Chase account was supposedly where most of the funds in his Ponzi scheme were deposited. Any large deposit can be a considerable source of profit to a bank. Assuming that the deposits returned the bank’s net interest margin and grew at a random geometric rate, this paper estimates that JP Morgan Chase generated $435 million in after-tax profits from this very large account over the course of sixteen years. With JP Morgan Chase the target of pending lawsuits relating to the Madoff fraud, this paper’s methodology and results may be of interest to litigants, prosecutors, journalists, and academics.

Keywords: deposits, fraud, JP Morgan Chase, litigation, Madoff, Monte Carlo simulation, net interest margin (NIM), Ponzi schemes, valuation

JEL Classification: G01, G21, G24, K13, K14, K23, K41, K42

Suggested Citation

Davis, Lou and Wilson, Linus, Estimating JP Morgan Chase’s Profits from the Madoff Deposits (January 28, 2010). Available at SSRN: https://ssrn.com/abstract=1460706 or http://dx.doi.org/10.2139/ssrn.1460706

Lou Davis

University of Louisiana at Lafayette - College of Business Administration ( email )

Lafayette, LA 70504-0200
United States
(337) 482-5762 (Phone)

Linus Wilson (Contact Author)

University of Louisiana at Lafayette - College of Business Administration ( email )

Department of Economics & Finance
214 Hebrard Blvd., Room 326
Lafayette, LA 70504-0200
United States
(337) 482-6209 (Phone)
(337) 482-6675 (Fax)

HOME PAGE: http://www.linuswilson.com

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