JPMorgan Chase & Co. JPM is in advanced discussions with the U.S Securities and Exchange Commission (“SEC”) to resolve an investigation over the sale and use of proprietary products for its private-banking clients. The news was first reported by Bloomberg.
JPMorgan plans to settle the matter for over $150 million. The settlement, which was expected to be resolved several months ago, could be announced as soon as Friday.
About the Waiver
With the settlement, JPMorgan is expected to receive a waiver from the SEC, which will permit it to continue the rewarding practice of fundraising for private companies. Also, the impending risk of restriction from raising money for hedge funds and technology startups, which led to a delay in settlement, will be eradicated.
However, in case of a future misconduct, the SEC may withdraw the waiver on soliciting funds provided to the company.
According to the waiver that may be granted to JPMorgan, the company will be required to hire an independent consultant to review its policies and procedures for following rules for private fundraising. Also, a senior JPMorgan executive would have to certify the bank’s compliance with its terms during the waiver period.
However, the company may lose an advantage often granted to the large companies, through which the companies can raise capital more speedily by skipping SEC review of the deal. This could increase JPMorgan’s cost of funding as the bank would fail to respond rapidly to changes in interest rates.
Flashback
JPMorgan has been under the SEC as well as the Commodity Futures Trading Commission (“CFTC”) radar for potential conflict of interests in its private banking division. The probe is concerned about whether the company’s sale of in-house investment products to pension funds and wealthy clients has been inappropriately administered.
Generally, banks can generate higher fee income from selling in-house financial products to their private-banking clients. The SEC’s inquiry pertains to how investment advisors at JPMorgan had recommended financial products to their clients.
If the investment advisors are registered with the SEC, they have to adhere by the fiduciary standards that require them to recommend only those financial products that best serve clients’ interests. Most investment specialists working with JPMorgan are bound by this fiduciary standard. However, JPMorgan promoted the use of its own proprietary products instead of selecting alternatives that were better suitable to clients.
Our Take
We believe that the ongoing inquiry and subsequent settlement will likely further enhance the disclosure standards at JPMorgan. This will surely aid private-banking clients to make more informed investment decisions.
JPMorgan currently carries a Zacks Rank #3 (Hold). Some better-ranked banks include SunTrust Banks, Inc. STI, BofI Holding, Inc. BOFI and Central Pacific Financial Corp. CPF. All these stocks hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment