Jamie Dimon Getting Beat Up Helps JPM
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Barney Frank with the uppercut and throws Dimon out of the ring! What's this? Frank is standing on the ropes...jumps...and does a flying elbow into Dimon! All the other senators are getting in on the action now.
That is pretty much what happened in Washington Tuesday. Senators took turns throwing punches at the JP Morgan CEO. JP Morgan (NYSE: JPM) has undergone trials in front of the Congress and Senate banking committee to "discuss" the $2 billion trading loss the bank reported about five weeks ago. The surprising part of these trials is that the JPM stock has increased about 5% since the pummeling began on June 13 (vs 2.5% by the S&P 500).
Throughout the trials, Dimon has taken an apologetic approach. He even said the "s" word and admitted they were wrong.
Let’s look at another firm down the block that has also been part of trials recently: Goldman Sachs (NYSE: GS). During their own trials, their stock price took hit after hit.
So what's the difference?
The huge difference between the firms was JPMorgan’s decision to give in, apologize, and try to charm as much as possible. Lloyd Blankfein and the GS crew tend to do the opposite. They are defiant and never give the politicians anything unless forced. There is no charming at all. They became the Wall Street bankers that America loves to hate.
In the early '90s, Warren Buffett and Berkshire Hathaway (NYSE: BRK-B) had a Wall Street banking trial of their own. Salomon Brothers admitted to gaming the system on US treasuries and it just so happened that Berkshire owned a large chunk of the Wall Street firm. A rogue trader on the bond desk decided to place numerous fake bids in a Treasury auction in order to get a larger portion of the issue for the firm. Once Buffett found out about the situation, guilty members were fired and Buffett admitted everything to the regulatory bodies. The stock was initially hit hard but eventually climbed back up. Buffett was very courteous and gave the regulatory bodies a free pass to look over anything. He even asked them what he should do with the firm. Salomon ended up steering clear of bankruptcy due to Buffett’s actions.
The market likes honesty and openness, especially with secretive banks. When looking at companies it is important to find management that has a record of honesty. Have they done what they said they would do? Did they admit mistakes and take the blame or try to hide it? You can never ensure that all employees will act in the best interest of the company but handling the big problems is the key.
mthiessen has no positions in the stocks mentioned above. mthiessen leads a partnership that invests in public and private companies. The Motley Fool owns shares of Berkshire Hathaway and JPMorgan Chase & Co. Motley Fool newsletter services recommend Berkshire Hathaway and Goldman Sachs Group. 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.