J.P. Morgan (NYSE:JPM) has recently been in the media with stories about the mishandling of mortgages, foreclosures, Libor issues, privacy issues, inadequate advising of clients on potential investments, and a host of other possible bad behavior . These very serious problems have caused a stir in the financial industry, and many investors are wondering about the outlook for the company's stock in the future.
SERIOUS REGULATORY PROBLEMS
The company's problems with regulators have gone on since May of 2013 after it was accused of "manipulative schemes" in a number of areas of its business. This accusation gave the bank a significant blow to its image of upstanding reliability and created a maelstrom of regulatory investigations regarding its activities. Even at that time, CEO Jamie Dimon warned investors of the likelihood of further regulatory enforcement actions in the future. In fact, eight separate federal agencies were investigating the bank's practices over recent years, including the Federal Energy Regulatory Commission that was looking into the company's trading practices in Michigan and California energy companies.
A separate investigation was underway regarding the company's relationship with Bernie Madoff, who bilked clients out of millions and millions of dollars.
Questions about J.P. Morgan's handling of delinquent credit card accounts was also under question. The multitude of questionable actions caused uproar among investors and financial institutions around the country.
J.P. MORGAN'S SETTLEMENTS
Already this year, Jamie Dimon was forced to settle the London Whale hedge trading case brought by regulators for $920,000,000. In that case, regulatory agencies both in the United States and the United Kingdom coordinated efforts to investigate mishandling of trading practices by the company. The Securities and Exchange Commission also fined the company $200,000,000 for wrongdoing, and the United Kingdom enjoined another $220,000,000 in fines.
The company continues to negotiate with agencies regarding its financial actions, and U.S. Attorney General Eric Holder has rejected a recent $3,000,000,000 settlement by the company. During this past week, Jamie traveled to Washington to meet with our United States Attorney General to try to negotiate a possible settlement for a reported $11,000,000,000. This settlement could involve our Justice Department, the Securities and Exchange Commission, our Department of Housing and Urban Development, and the New York Attorney General. These possible settlement numbers are staggering to the average J.P. Morgan shareholder.
JAMIE DIMON'S LEADERSHIP
Chief Executive Officer Jamie Dimon has been at the helm of the company since 2005 when the company merged with Bank One, which he then headed. Once involved in prestigious companies such as American Express and First Chicago Corporation, Dimon has shown vigorous leadership qualities and a high-profile image that has helped to make J.C. Morgan one of the most successful banks in the banking sector. However, his aggressive tactic have often come into question and made him the target of both media and regulatory agencies.
In the midst of the current problems, Dimon has vowed many times to deal with the company's regulatory issues and turn around its tarnished image. However, some financial experts feel his resignation is necessary for the recovery of the company. His resignation could very well help the stock rally for the benefit of JPM shareholders and may give the Obama administration their pound of flesh they have been seeking since the Great Recession.
J.P. MORGAN STOCK OUTLOOK
The settlement amounts swirling around the J.P. Morgan regulatory problems threaten to eat into profits for the remainder of the year. These reports of settlement amounts caused Oppenheimer Fund analyst Chris Kotowski to drop J.P. Morgan's third quarter earnings estimate on in September of 2013 from $1.42 per share to $.70 per share.
Several other Wall Street Firms including Goldman Sachs (NYSE:GS), Societe Generale, S&P Capital IQ, Rafferty Capital, and Macquarie have lowered or downgraded JPM.
We agree that this is a time to be careful with this stock and it may very well be a potential short for aggressive investors in the near term if these problems continue to grow and the market has a correction and interest rates rise which is typically not good for banking stocks.
Whether the company's current problems continue or are ultimately resolved for a reasonable number of many billions of shareholder dollars is critical to the stock's performance in coming quarters. However, the company's fundamental stability and record of strong earnings assures significant gains over the long-term regardless of possible leadership changes at the C.E.O. level.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article was written for informational purposes. The article was based on public information. Investors should consult with their financial adviser before making any financial decisions.