When it comes to bank stocks, it seems that JPMorgan Chase & Co. (NYSE/JPM) is Public Enemy Number One. It’s unfortunate that so many retail investors have such a negative market sentiment towards JPMorgan since it has the potential for large returns, with a dividend yield of 2.9%.
The latest cheap shot is nothing short of a publicity stunt by a future politician, as the office of New York Attorney General Eric Schneiderman has just filed a civil lawsuit against a unit of JPMorgan, The Bear Stearns Companies, Inc., for alleged fraud.
Of course, I don’t condone fraud; in fact, I think the penalties we have are far too lax when it comes to all companies, not just bank stocks. The problem is that this is clearly not about what’s in the best interest of America, but rather the need for a high-profile case to catch the public attention for the Attorney General to move up the rungs of the political ladder.
When bank stocks were in the middle of the financial crisis several years ago, market sentiment for the group was extremely poor. No one was willing to lend or help out other bank stocks with such a negative market sentiment. The federal government essentially forced JPMorgan to take over Bear Stearns. Initially JPMorgan balked, stating that it didn’t have enough time to conduct due diligence. The federal government essentially said, “Don’t worry; we’ll cover you.”
Now that the political tide on bank stocks has shifted with market sentiment, the bull’s-eye is on the back of JPMorgan, among other bank stocks. Obviously, this is a lesson: if you are a business leader, you can never trust the word of the government. As market sentiment shifts, so too will the support of the government.
JPMorgan stepped in to help prevent a collapse of the U.S. financial system, and what it gets in return is a lawsuit over an entity that they had nothing to do with. These alleged crimes were for actions that took place before JPMorgan took over Bear Stearns. I should know better, but I am still surprised that politicians will do anything once the market sentiment shifts to gain favor among potential voters.
This is nothing but an attention-grabbing shot at bank stocks by an Attorney General who wants publicity. And he is missing the point. I am all in favor of punishing illegal behavior, but why is he launching this attack against bank stocks and not against the individuals who perpetrated the fraud? Even if he is successful, no one will go to jail; the bank stocks will simply pay a fine and the Attorney General will have a “win” to sell to the public when he runs for governor as a politician who “cleaned up Wall Street”—it’s a joke.
I suggest that criminal actions be punished on an individual level. If you were forced to commit a crime while working for one of the bank stocks and you knew that you wouldn’t go to jail but the company would simply pay a fine, you wouldn’t care that much. But if you knew you could go to jail for 10 years, I’m sure more people would speak up and refuse to conduct illegal actions.
Let’s stop these ridiculous headline-grabbing actions against the bank stocks and start prosecuting individuals that commit crimes. If bank stocks employ hundreds of thousands of people, not all of them are committing fraud. Let’s target the specific criminals. How many senior executives at bank stocks would encourage illegal behavior if they knew that the lower-level person could testify against higher-level employees and put them in jail for over a decade?
I would suggest that there would be a massive inclination to conduct business properly if the incentive structure dramatically shifted. Bank stocks aren’t the problem; the incentive structure is the true culprit.
Chart courtesy of www.StockCharts.com
I previously discussed JP Morgan when the stock was $35.00. It has continued a nice uptrend, as market sentiment has turned quite bullish for many bank stocks. Unless something drastic occurs in the financial markets, once it breaches $42.00, the next level to watch is a test of the 52-week high of $46.49.