While speaking at a London conference on capitalism, IMF managing director Christine Lagarde said progress on building a safer financial system had been slowed by industry attempts to halt the introduction of tougher rules on banks. The comments were backed up by the Bank of England’s Mark Carney saying “unbridled faith in financial markets” before the recent crisis, rising inequality and corruption had damaged the “social fabric.” No doubt they are referring to scandals such as LIBOR manipulation, insider trading, and that wonky catch phrase from the Great Recession, “Too big to fail.”
Apparently “Too big to fail” also means “Too big to grow” as increased regulation has led to decreased profits for many banks around the country. Or at least that’s what the banks will tell you as their shelling out multi-billion dollar settlements for their bad behavior. Which leads us to today’s Bear of the Day, JPMorgan Chase (JPM).
Now before you go storming into your local Chase branch and start yelling at some twenty-something trying to make ends meet you have to recognize that most of this madness isn’t at the surface. The banking scandals that have rocked the industry came from the top, not the kid helping you fill out your mortgage application. But let’s try to keep emotions from clouding our judgment and take a look at the numbers:
$13 billion settlement over its sale before the financial crisis of mortgage-backed securities
$110 million settlement for manipulation of Japanese yen version of LIBOR in 2007
$2.6 billion to victims of Madoff’s fraud
$4.5 billion to 21 institutional investors to settle MBS claims
$100 million to the CFTC to settle charges regarding the “London Whale”
$920 million to the OCC, the SEC, the Fed, and the UK Financial Conduct Authority
$389 million to credit-card customers
There are three or four other eye-popping settlements you could throw in here. These are part of the reason why fourteen analysts have revised their earnings estimates to the downside in the last 60 days for JPM, dropping consensus for the current year from $5.98 per share down to $5.45 and next year’s numbers down from $6.37 to $6.09.
I don’t want to be too harsh on JPM. After all, they are the bank that propped up Bear Stearns. JP Morgan himself loaned the US Government money during the Great Depression. Jamie Dimon is a certifiable genius and as a retail client myself I’m very happy with my banking experience. But I’m not here saving the manatees, I’m here saving your investment dollars.
The chart looked a whole lot better before April hit. The stock was trading above $60, the 25 day moving average shifted by 5 days was below the price and positively sloped. Since then we saw a harsh downturn in the stock, ultimately finding support down at $53. This helped pushed the stochastics into an extreme oversold condition.
There was a small bounce off $53 but this may be just a small reprieve and not the start of a corrective trend back to the upside. This mid-$50 range where the stock sits today is a heavy volume zone and was an area of support during the slide. As is often the case, former support becomes future resistance. With the stock budding up against this resistance I’d be careful about jumping headfirst into a trade like this.
The major regional bank industry ranks in the bottom 13.96% of our Zacks Industry Rank. There is not a single stock in the industry right now that carries a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy).
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