By Vitus Vrynn
Most recently, JPMorgan's (JPM) Chief Executive Officer, Jamie Dimon, spoke about how the market is doing better than some think, and he has quite a bit of reason to be positive due to analysts' continued optimism in the investment banking giant. An advisor to JP Morgan's institutional investors also encouraged investors to approve the executive pay for the corporation. Amid an industry that is mis-stepping every which way, the encouragement by an outside investor only solidifies how much JP Morgan is soaring.
As far as cash flow goes for the industry leader, it looks like a sale of its metals unit will bode rather well for returns on dividends. While Asia is a market which is experiencing tremendous growth right now, it still seemed like the right move for JP Morgan to keep its money moving, and I have no doubts the sale was a wise choice.
On the cautionary side of things for JP Morgan, a lawsuit sought by John Hancock Insurance has been moved to the federal court systems from the New York Supreme Court. This marks a larger potential for JP Morgan to suffer a blow to its cash flow than it would have in state courts, but especially with the aforementioned sale, I have no reason to believe that JP Morgan will have difficulty paying out dividends to its shareholders of preferred stocks.
As for my recommendation of preferreds for JP Morgan, I would encourage investors to consider the JFTTL (JFTTL.PK) preferred, which is currently enjoying non-cumulative distributions close to 8%. The call date is not until 2018, so there is still plenty of time to enjoy the high security and higher than average returns.
As for Morgan Stanley (MS), it seems like the troubles are continuing to roll. Its international divisions have been suffering as much as its corporate headquarters have been, and there seems to be no end in sight for the string of allegations against various high ranking officers of the firm. Garth Peterson, a high ranking manager for its China division, has pleaded guilty to a number of offenses. On top of $3.7 million dollars' worth of various sorts of sanctions, Peterson is being permanently barred from the industry.
While it is certainly a good thing in the long run for Morgan Stanley that it is free of yet another corrupt officer, it does not help reaffirm investors' faith in the brand that the company spent so long constructing for itself. Among competitors, however, Morgan Stanley has been starting to focus on its fixed income products as a niche and has been improving compared to others', such as Goldman Sachs (GS), decline in this area.
I, for one, remain quite bearish on Morgan Stanley's prospects, but as I have said before, it could make a turnaround very quickly, so keep a sharp eye. For the moment, I do not recommend any of Morgan Stanley's preferred stocks.
Anyone who has read my recent articles knows that I am usually quite bullish on Goldman Sachs. However, recently it seems to be disappointing its preferred stock owners by showing a lower fiscal performance in many areas, even compared to others like Morgan Stanley. The lowered revenue will negatively impact the firm's cash flow going into the next quarter, and doubts are growing about as to whether it will be able to pay out dividends on non-cumulative preferred stocks.
Goldman Sachs has not been without some victories, such as the recent ruling in favor of the company in a recent case that was pursued by the ACA. IT should be noted that the ruling was just regarding the accusations of unjust enrichment, but it still faces several counts of fraud, which could cost as much as $120 million. Suffice to say, that is a very major set of charges, so Goldman Sachs is going to be in a darker place for a while.
For the moment, due to this bearing encumbrance on Goldman Sachs, I would suggest investors looking to buy preferreds in Goldman Sachs to hold onto their dollars for a little while until some of the dust settles.
On the brighter side, Goldman Sachs may be recognizing its current vulnerability and as such looks to be teaming up with Citigroup (C) to acquire two CDOs valued at approximately $4.8 billion. The acquisition should prove mutually beneficial to both companies - which must see the necessity of teaming up to get a crack at JP Morgan's current slot at the top of the industry.
Citigroup has been making significant decisions in its global industry, and has just acquired a large amount of office space in Mumbai. This acquisition makes me think that Citigroup is looking to increase its presence in India, which is an extremely smart move, considering the potential for growth there.
Given that Citigroup has been following up reasonably on sound business ventures and staying out of the headlines by avoiding major follies or scandals, I find this a good time to recommend its C-P preferred stock (C-P) which is enjoying over 8% returns and has a later call date of 2/15/2018. I don't see Citigroup going gangbusters like JPMorgan Chase is, but it has been performing consistently well, which is what you want to see when investing in preferred stocks.