Investors may be concerned about the banking industry at the moment, as many mighty competitors seem to have fallen. JPMorgan Chase (JPM) is one that has had particularly bad press lately, and it is still not very strong. Some actions have been good for the company, but it continues to face too many problems. I do not have a lot of confidence in the company, but I do think it should be able to maintain a fairly consistent stock price for the time being.
In response to the company's messy multibillion-dollar loss, JPMorgan's chief executive Jamie Dimon has been apologizing to all who care to listen. In his apologies, he shed more light on the matter, and as you would expect, he is trying to downplay the effects of the losses. Apologizing will not return the money to shareholders, but Dimon has noted the possibility of a clawback. In essence, there may actually be some punishment for the executives whose actions led to the trading losses. This should please the public and help JPMorgan bounce back from this.
A committee of central bank supervisors is reviewing the trading mess and the probability of similar faulty management issues in other areas of JPMorgan. Thus far, the committee has found none of these weaknesses. Scott Alvarez is the general counsel for the Board of Governors, and he said, "The Federal Reserve continues to evaluate whether the governance, risk management and control weaknesses exposed by this incident may be present in other parts of the firm." He also went further to claim, "To date, we have found no evidence that they are [present in other parts], but this work is not yet complete."
Nonetheless, the grilling exercise to find the root cause of the trading loss is far from being over, as Jamie Dimon is scheduled for another appearance before the legislative arm of the government today. The appearance will occur before the House Financial Services Committee, so this will surely be a tougher challenge for the chief executive. Dimon will not be walking alone, however, as he will be appearing on the floor with five of the bank regulators like the comptroller of currency. He will also appear with the general counsel of the Federal Reserve, who will give an account regarding the trading activities of the CIO's office.
The reality of the matter is that asking Dimon and other executives to appear before all the panels in the United States will not reverse the losses. We all know that JPMorgan is big enough to suffer the losses, and shareholders will only have a small loss to bear. The mere fact that those responsible for the loss are being held accountable for their actions, however, may give investors small comfort and respite. It may also go a long way in doing some damage control and increasing the confidence that investors have in the bank. Damage control and investor confidence are important aspects to a company if it wishes to attract new investors. In other words, while this situation is not over yet, changes like this may lead to improvements in JPMorgan stock.
Some remain unsatisfied, however, even with the current turn of events surrounding the JPMorgan trading losses. It is on this note that the Louisiana Police Pension Fund is initiating a class action suit to sue the bank for some alleged securities fraud. This claims that the bank was responsible for misleading investors for roughly two months leading up to the multibillion-dollar losses. The sad reality is that this will not be the last of similar lawsuits against the bank, so investors should pay close attention to get a sense of how these lawsuits will go. In a related development, a U.S District Judge has approved a $150 million settlement in a lawsuit involving JPMorgan and three union pension funds over an investment deal gone wrong. This is not bad news for the company, but it does continue to show the current legal mess that is dragging it down. If a multitude of lawsuits continue popping up, the company could suffer from even worse press, and the stock could struggle more.
In another new development, JPMorgan, Bank of America (BAC), and Citigroup (C) are the subjects of the highest volume of complaints lodged with the U.S Consumer Financial Protection Bureau last year. The data will be made public, and this will likely take a toll on all three banks. According to Richard Cordray, the bureau's director, "Anyone with access to the web will be able to review and analyze the information, and draw their own conclusions." As people investigate these complaints, they may find even more problems for the companies.
In the data, 13% of the complaints are directed at Bank of America, 11% are directed at JPMorgan, and 11% are directed at Citigroup. In addition, 8% are directed at Capital One Financial (COF), while Wells Fargo (WFC) has the lowest number of complaints with 5%.
JPMorgan is still moving forward, at least in its Mexican arm of operations. JPMorgan has plans to increase the capital available to the Mexican Unit by $250 million to raise the capital in the Mexican arm to $653 million. This significant move would surely herald the Mexican unit into a higher level of productivity and profitability. Thus, you can expect this to have a positive impact on JPMorgan stock.
The positive effects of some events may not be enough to outweigh the negative events. Legal issues continue to plague JPMorgan, even if it is attempting to take responsibility for the trading loss and recover from the event. It has had too many complaints and issues for me to have great confidence in the company. I would be cautious, but I do expect it to maintain a fairly stable stock price at the moment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.