I am particularly keen on JPMorgan. By merely looking at the fundamentals, it is easy to believe that it is doing quite well. Nonetheless, recent twists of events seem to suggest otherwise.
Internally, it seems to have had its fair share of adversities. The external economic environment also seems to be weighing down on the big wig. To further aggravate the situation, Bank of America (BAC), which happens to be a close competitor, has secured a solid leadership as NYSE’s most active stock.
The harsh reality
Last month, news on JPMorgan’s $2 billion loss went viral. It was the talk of Wall Street — from subways to offices, every corner of Wall Street was buzzing with debate over the heated issue. Apparently, the bank made a few fatal errors that translated into a harsh and inevitable fate. JPMorgan was compelled to dive deep below the break-even point. The person supposedly held responsible for the loss is probably pondering the $40 million he made while at it. Mr. Iksil, since dubbed the "London whale," made $40 million and left JPMorgan reeling in the effects of what satirical analysts would call "a $ 2 billion heavy knockout punch."
At the wake of the loss, a fresh wave of adversity has struck yet again. A trust has now sued JPMorgan’s EMC mortgage unit. The trust, which was formed in 2006, had bought a pool of residential Mortgage loans from JPMorgan’s EMC unit.
The trust has since lodged its complaints against JPMorgan’s alleged breaches of warranties and representations. These complaints have been followed up through a full-fledged lawsuit, and the trust now demands outrageous damage settlements. It has not given an exact figure, but it has clearly indicated that it will not settle for amounts below $293 million. In addition to that, it has also confirmed that it will be seeking interests on the damage fee.
In my line of thought, JPMorgan can battle the lawsuit comfortably. Notwithstanding, the same confidence and conclusiveness cannot be rallied on its $2 billion loss. Although the loss has since averted the media (the media typically finds new things to talk about), it still has anchorage at JPMorgan.
The harsh reality is that JPMorgan still needs to double, if not triple, its activities.
Shred of hope
Amid all the mounting incertitude, there is still some shred of hope — some light at the end of the long dark tunnel.
JPMorgan has bolstered operations at its Retirement Plans Services unit. This has been done through the creation of a new position in the executive incline. From now onwards, the RPS will have a Head of Sales and Marketing Solutions. This office will primarily focus on fortifying a strong base for unified sales and marketing activities.
The person chosen for this office is not absent experience, let alone prowess. Bill McDermott not only has a reputable track record as a leader but has also served in a somewhat similar position in AXA equitable and Goldman Sachs. David Musto, the CEO at RPS and the man that McDermott will be reporting to, was happy to have McDermott on the team.
JPMorgan is also among the banks and equity funds eyeing toxic real estate assets in Spain. Although details are still sketchy my take is that this is an indication of JPMorgan’s immense appetite for risk. This is a good thing. It needs to take more risks and heighten anticipation among shareholders.
Although I am not that into numbers, financial stocks occasionally compel me to take a glimpse at them. This is chiefly because financial stocks attract a lot of risks. It is very possible to make overwhelming losses overnight. Therefore the only security is having a strong financial muscle. This provides a good fallback position in times of adversity. JPMorgan has this advantage over close competitors like Bank of America, Barclays (BCX) and Citigroup (C).
As a conclusion, there is a shred of hope for JPMorgan. I believe that it has merely slipped and will wake up more powerful than before.