How Will New Mortgage Regulations Impact JP Morgan?
Helen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the impending regulations for mortgage lending, the financial market will see some changes to the way it does business as early as January of 2013. The regulations are not altogether a bad thing considering all of the fines major financials have faced due to poorly thought out lending practices. The lending was a boon to such companies in the short to medium term, but due to the lawsuits and fines such practices only get in the way of paying out dividends.
Naturally, preferred stock owners, such as ourselves, are concerned most with this aspect so that our money can make profitable returns. While it should be noted these changes will cause the major financials some turbulence as each one restructures, these changes should ultimately improve consistency of cash flow and give investors a better idea of which companies are performing.
The mortgage lending changes, in conjunction with the Federal Housing Administration decision not to employ a new rule which would have disqualified prospective home owners with outstanding collections show that federal regulators are taking a side with consumers instead of larger corporations in regards to future legislation.
All in all, I think this is the best thing for the industry, as the changes focus on accountability. Even companies that have been performing well in regards to responsibility, such as Wells Fargo (NYSE: WFC), show a sense of greed which extends beyond a sense of entrepreneurial assertiveness, like in the linked case (see: greed) that resulted in a $3.1 million dollar fine. As for Wells Fargo specifically, I have spoken in the past about how its J-series stock is a strong stock to consider, and even in spite of the recent lawsuits on top of the one I mentioned above, I can say the performance of the preferred should still be strong.
It is easy for the seemingly endless flow of legal suits and fines to overwhelm us as investors, but I encourage everyone to look at the bigger picture. With any of the big financial companies, unless it is a major fine or lawsuit, the trickle of millions is often comparably negligible in an industry that deals in billions. The trick when it comes to preferreds, it seems, is to know what size a fine, lawsuit, or even an acquisition would have to be in order to achieve a significant enough magnitude to effect such financial giants.
Even some French politicians have gone so far as to point out the financial gravity of such big companies like Goldman Sachs (NYSE: GS). While the implications made in the linked article are not intended as positive, I think the take-away here is that even foreign powers recognize the staying power of companies like Goldman Sachs, which is quite positive.
Even in spite of a recent acquisition on Goldman Sachs’ part in which the dollar amount was not disclosed, I would definitely still continue to recommend its B series preferred stock if you’re looking to make long term returns. The acquisition, which is an insurance/reinsurance company, should prove fruitful for Goldman Sachs, perhaps most notably due to the expansion of its client base.
Morgan Stanley (NYSE: MS), while definitely guilty of such petty offenses, is starting to talk a smarter game. It has recently announced that it is seriously speculating its potential as the lead “fund of fund” business. In the past I have speculated about whether or not it’s Chief Executive Officer, James Gorman, is performing to a level deserving of his substantial awards, which are conditionally based, but there is a chance that choosing a niche market within financials and running with it may redeem his worth to investors and his company as a whole.
Other interesting moves on Morgan Stanley’s part include a foray into the public sector by discussing a bid for the municipal parking assets of Harrisburg, Pennsylvania. While Morgan Stanley is still one of the more dubious of the big financials, I tend to give credit where it is due, and I think it is at least an interesting prospect that it is looking at finding more creative ways to generate cash flow.
JP Morgan Chase (NYSE: JPM), on the other hand, is doing as well as ever, and it is continuing to branch out and make smart ventures with its capital. Recently the company has acquired a 7% stake in a major publishing company out of Israel that has shown tremendous growth. That being said, it isn’t surprising that its chief executive, Jamie Dimon, was so bullish on financial prospects for corporate America in a talk he gave at Rice University.
Even considering the recent acquisitions, the optimism Dimon has shown not just for his company, but for the greater business community as well, seems to be a byproduct of a lot of talent working for an outrageously successful company. You might think it’s just the warmer weather, but I’m inclined to feel quite bullish on JP Morgan Chase. Just be sure to keep paying close attention to the legal fallout from the 2008 financial crisis. We have already seen a $20 million dollar fine slapped on JP Morgan Chase, so there is at least an inkling to raise caution, even if it is unlikely.
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