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Controversial JP Morgan
Posted by: Muhammad Bazil (IP Logged)
Date: October 12, 2012 11:28AM
The market yielded hefty profits last Tuesday, but sentiments were confusing, restricting the DOW to keep up with the quarter. Credit Suisse has increased the benchmark for loans for U.S. banks, hence making room for increased leverage. Things are looking up as U.S. banks reduce barriers on loans and leverage; this is due to two driving factors: loan growth and asset quality. PetSmart Inc. (PETM) promises to be the newest component of S&P 500 and had a 1.4% rise, taking the place of Sunoco Inc. at 0.69% increase. The market would have looked good for JPMorgan (JPM) if there was no lawsuit filed against the company.
JPM was struck a media blow when it was accused of illegal practices that caused investors at Bear Stearns and Co. to lose money. Bear Stearns and Co. was a company specializing in financial instruments dealing with the sale of mortgage based securities and loans, which merged with JPM during the recession of 2008. It has been accused of defrauding investors on mortgage-backed securities. A spokesperson for JPM has stated that it is ludicrous to accuse without any chance of rebuttal. The spokesman has requested that prior and related records be checked and matched to find possible transgressions — if there are any, that is. Although JPM faced terrible criticism, brighter news of the Spanish and global banks claims on improving global circumstances has limited the drop to 0.12% from its previous rise of 1.2% before the lawsuit.
On a positive note, JPM is increasing its activities in Columbus which works actively in producing job growth, adding 6,000 workers to the total workforce. Columbus now boasts higher employment, cutting down the unemployment rate to 6.1% compared to Ohio’s 7.2% and the national aggregate of 8.1%, as of last August. The chief economic officer of Columbus 2020 said the financial securities businesses are mostly IT concentrated and Columbus boasts a 60% higher concentration of IT workers compared to other states in the nation. Columbus also has a competitive edge in terms of costs as the cost of labor and the cost of living are relatively lower. Columbus is one of the best places to do business, as mentioned by the president of Marketing in Columbus. It is bound to be one of the major financial centers soon. JPM's investment and commitment to Columbus may be a potential factor in securing its financial future in the years to come.
As for other major financial insurers like Nationwide and Huntington Bancshares (HBAN), prices fell by 0.29% while Limited Brands Inc. shares fell by 0.30%. Major retailer Abercrombie and Fitch fell by 2.93%. This will help in determining future prospects of JPM as the manufacture of goods and services is very important when determining the overall outlook of the economy.
But Chase’s primary competitor is Goldman Sachs Group Inc. (GS) which rose by 0.33% as JPM fell and GS announced that future gains are predicted at 25% by next year. GS has repeatedly sold shares at a premium of 2.5 times more than they were actually worth before the recession. This has given GS a bad reputation in the market, but the financial investments and GS’s net book value continue to rise and a 25% profit it is not impossible. Financial and operational activities look sturdy and well maintained, and the company has been out of the competition limelight for too long. GS is best known for its capital allocations which it has maintained successfully over the years despite recent turmoil. Their equity capital has stabilized at $175 billion and their assets at $950 billion, thus increasing their capital-to-equity ratio at 13x, compared to the peak of 26x. Overall, GS can prove to be a great threat to JPM in the very near future.
JPM daily stock chart
JPM yearly chart
Potential investors holding stock of JPM must be careful about everyday news. It is advisable to follow the outcome of the lawsuit on a daily basis. Even though JPM has its popularity, future outlook does seem promising in this competitive market. Investors are required to invest and more to make profit. The only positive light shed is its contribution towards Columbus on a long term basis. So if a potential investor has the cash, hold your stock until JPM provides further prospects and news on future outcomes. However, it is advisable to SELL if the chart follows down through the $40.75 mark.
GS will also play an important role in producing the final outcome for JPM. If GS makes its grand entry and JPM keeps falling, then it is bad news for all JPM stock holders. The potential investor must keep an attentive eye and ear to what is happening in the market with due diligence. Whereas a new investor must hold out until there are further updates on the market, buying JPM stock in this bearish market combined with the possible reemerging competition of GS presents a too-risky prospect for new investors to delve into JPM shares.
Stocks Discussed: PETM, JPM, HBAN, GS,