Will Bad Press Derail JP Morgan?
Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Noise is being made about JPMorgan Chase (NYSE: JPM) by the “Occupy Wall Street” movement. Among the many lawsuits surrounding the movement, the way that the protesters were handled by police is coming into question. This lawsuit is being brought by four New York City Council members. They are claiming that the police used excessive force when eradicating the protesters. The complaint alleges that the police made false arrests and violated free-speech rights of the protesters. The complaint was filed in Manhattan federal court on May 1 by the council members and 11 other people who were involved with the movement.
What makes this especially pertinent for JPMorgan is that it is one of the defendants in the case. According to the court papers, the suit alleges that JPMorgan and Brookfield Properties, along with other private companies, went outside of the law by excluding the protesters from public spaces that they should have been allowed in. The companies actually do own the property that the protesters are claiming they had every right to be on, but the zoning agreements that the companies have with the city do, indeed, state that these spaces are supposed to remain open to the public.
The “occupy” movement held a major event on May 1. The idea was to have a “general strike” of all people across the country who are a part of the so-called “99%”. This event comes at the beginning of these court cases mentioned earlier. Of course, the suits that were filed in federal court will be decided by judges, who are hopefully impartial to the movement and the recent events, but I can’t see this ending well for JPMorgan from a public relations standpoint. The country may not understand exactly what the “occupy” movement stands for, but I definitely think that they know what it means for the rights to free speech to be compromised. Whether JPMorgan is guilty of this or not, it does not look good to be accused of it at this high level.
The “occupy” movement had quite high hopes for the May Day event. The event was planned to be a disruption in the cycle of large companies like JPMorgan. The bank has been specifically targeted among American corporations by the movement and protesters have not shied away from listing their grievances against JPMorgan. The banking giant has faired well in the light of the protest, which speaks either to its resolve or the weak movement. Either way, it’s another step in the wrong direction for the public image of the company.
The bad news doesn’t stop there for JPMorgan. It was recently announced that JPMorgan Securities LLC, a unit of JP Morgan Chase, will have to pay $1.9 million in damages to Ashley Furniture Industries. This is compensation for a claim of damages that were caused by the sale of auction-rate securities. Back in August of 2010, JPMorgan Securities was accused initially of withholding information about the unsafe nature of auction-rate securities. On top of this, it was alleged that JPMorgan Securities was not forthcoming with information about its involvement in trading auctions. It turns out that it was directly involved in these auctions.
These claims are quite serious. When the markets crashed, many investors had their money lost in investments that never turned around. It looks as though JPMorgan may have been at least partly to blame for some of it. This is quite unfortunate for the company. Despite all of this bad talk about this settlement, JPMorgan actually came out relatively unscathed. Ashley Furniture was initially seeking compensation for a whopping $26.7 million in punitive damages. The Financial Industry Regulatory Authority (FINRA) only awarded Ashley Furniture with $1.9 million in compensation. Also, the FNIRA decided to make each party pay for its arbitration expenses separately, rather than having JPMorgan be charged for the entirety of the process.
One of JPMorgan’s competitors, Goldman Sachs (NYSE: GS) was hit with similar lawsuits as well. It was accused of having weekly “huddles”, which consisted of its analysts and traders swapping ideas. The Securities and Exchange Commission (SEC) got in on the fun, as well as FINRA, by accusing Goldman of negligence. As it turns out, Goldman’s total penalty comes to $22 million. It will have to pay $11 million to FINRA and $11 million to the SEC. This is significantly more than what JPMorgan was hit with, but still just a drop in the bucket as far as revenue is concerned.
Many people think that companies like JPMorgan and Goldman Sachs are being let off the hook with such small penalties. That feeling is conflicted through statements like the one made by Robert Khuzami, the director of the SEC’s enforcement division, when he said “Under these circumstances, $22 million is a very significant penalty, and the largest penalty ever ordered by the commission for this type of violation.” The SEC obviously feels like its won a bit of a battle, but the large banks still persist on.
Bank of America (NYSE: BAC) is still dealing with its own bad press. Recently, a huge banner was hung in protest of the bank at an Obama rally. Again, the small protests won’t make a way toward hurting the stock but eventually one may be the straw that breaks the camel’s back. In fact, the mounting protest may have influenced the recent discontent that Citigroup investors have shown toward the company’s CEO payout. Either way, that company certainly has some image protection to straighten out right now.
Perhaps the better question is when JPMorgan’s bad press will catch up with it, or if it ever well. The banking industry has so far slid by on scathing press and media attention, but how long will it last? The “occupy” movement made some steps, but they wasn't anything to really throw off the stream of business. If the next protest movement gains more popular support, however, the banks could be in trouble. Watch to see if JPMorgan makes moves to repair its image, that will tell if its truly concerned, and maybe, also, if you should be.
At this point, maybe the best thing JPMorgan’s reputation has going for it is that it’s not alone.
BobbyFisher has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.