The following five banks stocks are up today following a JPMorgan Chase meeting where the CEO Jamie Dimon won a shareholder endorsement of his pay package and kept his title of chairman of the board, five days after disclosing a $2 billion trading loss at the bank. Most ballots were cast before Dimon revealed the loss. Speaking with reporters after the meeting, Dimon said: "The buck always stops with me." Earlier, he told shareholders that the company's mistakes were "self-inflicted.", according to a recent AP report.
I posit the banks are essentially in the eye of a coming financial storm spurred by the JPMorgan (JPM) debacle, the Eurozone sovereign debt debacle, and the coming U.S. Fiscal Cliff that will wreak havoc on earnings and performance. Not to mention the extensive headline risk associated with the inevitable parading of the banks executives in front of congress and the senate.
Proponents of the new Dodd-Frank regulations and the Volcker rule, which would restrict banks from trading for their own profit have won the fight before it has even started. Dimon was the figurehead for the banking industry in regards to debating the merits of new regulations. Now with this blemish on his record, he has no credibility. The argument is if Dimon, the smartest guy in the room, can be hoodwinked in such a way who knows what else is could occur to other major banks.
Barack Obama, who appeared on ABC's "The View" Tuesday, stated,
JPMorgan is one of the best-managed banks there is, Jamie Dimon, the head of it, is one of the smartest bankers we got, and they still lost $2 billion and counting. The bank was "making bets" in the market for the complex financial instruments known as derivatives.
Goldman Sachs (GS) and Citigroup (C) are up today as well as JPMorgan. Goldman Sachs has derived a significant amount of revenues from proprietary trading and investments in the past. I believe JPMorgan and Goldman have the highest level of risk to their bottom line based on the implementation of the upcoming financial regulations overhaul. Citigroup's exposure is mostly related to the Eurozone crisis.
The Eurozone Crisis
The Greek Financial Crisis is another big headwind for the banks. The Greek crisis could be the slowest moving train wreck of all time. Ironically, the Greeks invented the word crisis. It seems obvious to me we are heading for another major sovereign debt debacle in the Eurozone. Greece can't even afford the interest on its outstanding debt. I don't think it's going to be the end of the world as we know it, but you will get an opportunity to buy these banks at lower levels. Citigroup is a true global bank and may have significant exposure to global financial markets. The bank may have significant risk regarding a Eurozone debt debacle if the Greek crisis sparks a contagious domino effect on Eurozone banks.
The U.S. Fiscal Cliff
We are heading for another dog fight regarding how to address the U.S. Governments financial difficulties as well. Federal Reserve Chairman Ben Bernanke recently warned lawmakers that risk includes taking the economy over a "massive fiscal cliff." Bernanke proposed the economy could face a foreboding set of circumstances if Congress allows the Bush tax rates and a payroll tax cut to expire and $1.2 trillion in spending cuts to be implemented simultaneously in January.
Under current law, on Jan. 1, 2013, there's going to be a massive fiscal cliff of large spending cuts and tax increases. I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date. All those things are hitting on the same day, basically. It's quite a big event.
I believe most of the up volume in the banks today is related to short covering and some bottom feeders attempting to catch a falling knife. I suggest this is not a time to buy on the dip, but sell on the rip. These banks are currently in the calm of the eye of the storm. Many more headwinds will materialize in the coming months. This story is nowhere near over. If you are in them presently, I would sell into strength and reallocate into high-yield, safe-haven, blue-chip dividend plays.