Lately, it has often seemed like Jamie Dimon and JPMorgan & Chase (NYSE:JPM) just can't get a break. Whether the Wall Street giant warrants intense scrutiny or is simply an outsized target, the last few months have presented JPM with quite a few pitfalls. Some of the firm's biggest headaches have related to 2012's now-infamous "London whale" scandal. That scandal saw the investment firm misplace $6 billion in dubious, arcane derivative transactions. In the aftermath of the "London whale" machinations, two former JPMorgan traders are facing criminal indictments. As if that weren't embarrassing enough, the huge loss inspired a number of investigations by U.S and British financial regulators. After settling most of these investigations to the tune of $900 million, JPM is reportedly gearing up to pay $100 million to the Commodity Futures Trading Commission (CFTC). Additionally, the bank will have to make another admission of wrongdoing, an increasingly common requirement of regulatory settlements.
In its dogged scrutiny of JPM, the CFTC has revitalized its reputation as an intensely combative regulatory agency. It would seem that agency is conscientiously trying to set itself apart from the SEC. Over the past few years, the SEC has faced widespread criticism for aiding and abetting Wall Street's culture of reckless risk-taking. Although the SEC has recently adopted a more active regulatory posture, the CFTC is demonstrably more insistent in its corrective measures.
As the CFTC moves against JPMorgan, it uses new powers granted by 2010's Dodd-Frank law. This financial law gives regulators greater authority to punish traders for jeopardizing the fortunes of ordinary investors. Previous to the passage of Dodd-Frank, regulators couldn't censure financial traders before proving they deliberately manipulated markets. Under Dodd-Frank, regulators have the power to take action if they believe traders have harmed markets with reckless actions. Though recklessness isn't well-defined in this context, the CFTC apparently had enough confidence in their position to force this settlement with JPMorgan.
After paying close to a billion in fines, it might seem like JPM can handle another $100 million fine with little difficulty. While the firm certainly has deep pockets, the CFTC could force the company to issue a damaging admission of wrongdoing. Desire for a stiffer admission could well have played into the CFTC's motives for removing itself from the larger "London whale" settlement. Depending on the nature of the forced admission, JPM could leave itself open to damaging future litigation.
JP Morgan Stock Price
Up until now, JPM stock price has remained fairly resilient in the face of multiple scandals. The future of the stock depends on whether or not the company is nearing the end this latest string of scandals and fines. At this point in time, we believe it may be a good time to book some profits and let the air clear.
Though the global financial crisis taught us that there are no absolute certainties for any company, investors must take JPM's stellar corporate history into account. This company has consistently weathered crises that would have put most other firms under water. Furthermore, we recently learned that JPM is sitting on a $23 billion legal defense fund. This is exactly the kind of farsighted prudence that leads to stable earnings for investors. JPM head Jamie Dimon also plays a big role in the public's continuing support for his company. Without seeming overly prideful or uncaring, Dimon has maintained a composed defensive posture under difficult circumstances.
Huge financial conglomerates like JPM are often complex and controversial. It's virtually impossible for a firm like this to grow without making many enemies. Chagrined after years of alleged inactivity, regulators could simply keep hounding JPM until the company is utterly humbled. Short of direct congressional action, however, taking down a company of this size would take years. In the meantime, JPM stock could see profit taking.
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.