By Vitus Vrynn
Goldman Sachs (GS) has been reeling in the departure of Greg Smith, who left the company and published an editorial in the New York Times regarding his concerns about the direction of the company. The changes that he claimed have taken place in the past 12 or so years demonstrate that Goldman Sachs has fallen from a more noble enterprise to a greedy many-headed beast squabbling with itself and robbing its clients blind. The company's CEO, Lloyd Blankfein, has expressed that his desire it to return his company to its former reputation for having a client focus, however even Arthur Levitt, one of Goldman Sachs' advisors, cautioned him not to make such claims because he believes none of the major financial firms are honestly "client focused."
Whether or not any of Smith's allegations about the banking giant are true is anyone's guess, however, what the media circus that has ensues from the aftermath of his departure demonstrates is that the executive echelons are currently trying to save face and present the company in the best light possible. While presenting the company in the best light possible is certainly imperative for its executives, whatever claims a former employee might make would be far less important if the aforementioned execs were not already out putting out the very same fires that substantiate Smith's claims to some degree.
As if things were not looking dismal enough for Goldman Sachs because of the shaky leadership news, one of its recent business ventures, a dark pool stock trading venue, completely tanked. Given how recently the venue had opened - 7 months ago - it seems likely that a fair amount of loss was incurred from the venture.
With these factors in mind, it is hard for me to recommend a buy on Goldman Sachs preferreds at this time, mainly due to my concern about how the internal squabbling will affect its ability to be productive. This stock seems like a sucker's bet to me.
Citigroup (C), it seems, is facing its own share of woe, regarding how investors rejected the existing executive payment plan. This rejection marks the first of its kind since the inception of the Dodd-Frank Act of 2010, which allowed shareholders to vote on executive compensation.
As a first, this action came quite unexpected to the leadership of Citigroup, and even though the lawsuits against the board and the executives might not go anywhere, I imagine Citigroup will be tied up a while from maximizing its efficiency as its leaders prioritize, making sure they get the money they feel like they deserve. For this reason, I also recommend holding off on purchasing Citigroup preferred stocks for the moment.
In spite of the aforementioned bearishness I have been espousing, the bright side is still JP Morgan Chase (JPM), which continues to be holding up quite well by its own standard. Its CEO, Jamie Dimon, even helped to set up the meeting with federal regulators for banks to establish a universal credit limit. This helps to demonstrate a more or less ambassadorial role on behalf of the banking industry, which JP Morgan's good standing has put itself in.
JP Morgan is also attracting talent from other big firms, as the company has just acquired Michael Fitzgerald from Morgan Stanley (MS) in order to manage hedge funds and develop relationships with clients. It's this kind of turning power that seems to ensure JPMorgan's future profitability and success. With Fitzgerald working with JPMorgan's prime brokerage clients, the revenue of that arm of the business will only increase.
On the more interesting side of things, the Occupy Movement seems to have struck a minor success with the impending lawsuit on JPMorgan from the City Council of New York for impeding free speech, as well as counts of excessive force. While I should stress the word minor, it is still interesting to think about, even if it probably won't impact day-to-day business in light of the extreme degree of success JPMorgan is experiencing.
I highly recommend the JFTTL (JFTTL.PK) preferred stock from JPMorgan, largely due to its later call date compared with other JPMorgan preferreds in circulation. The return rate is also healthy, so if you are looking to buy, this is an excellent one to keep your eye on.
Wells Fargo (WFC) has been performing admirably, however there are a number of acquisitions that the company is making that could affect cash flow negatively. For starters, it is acquiring Merlin Securities. The acquisition should open up a number of possibilities for Wells Fargo in the securities exchange department, however, the pretty penny of the purchase could set back dividends.
Wells Fargo is also purchasing $560 million worth of loans from the German company, Eurohypo. Again, as a long-term investment, this is quite good, but as I said, regarding cash flow this could be a problem.
Overall, I would hold off on Wells Fargo for now, but as a company, it seems to be handling itself well. Keep an eye on Wells Fargo for the future, because it won't be long until it becomes a good time to invest in its preferred stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
