Can JPMorgan's China Investment Boost Investor Sentiment?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For the most part, I think it is fair to say that JPMorgan Chase (NYSE: JPM) may continue to sink in the coming weeks.
The reason for my negative outlook on the company is because of the uncertain fate the company’s investors may decide on regarding its more than $2 billion in trading losses. Needless to say, investors are less than happy about this situation and they are fairly keen to make their displeasure on the matter felt. Quite a few institutional investors in the company have sought legal counsel and advice regarding the situation. At this point, it is not clear exactly who these investors are. Pension funds are considering filing the lawsuits, accusing JPMorgan of securities fraud. Whatever the outcome of the case, JPMorgan has now successfully built up a reputation that is less than attractive for potential future investors.
JPMorgan recently joined the trend of most banks deciding to invest more into its presence in China.
The company recently invested another 2.5 billion Yuan (about $394 million) into its China unit into its Chinese unit. HSBC (HBC) and Singapore’s DBS Group are among other banks that have taken this path. The idea is to invest as much as possible into units in the Chinese marker as they are expected to grow rapidly over the next few years. You may have heard reports that the Chinese economy is not growing as quickly as it once was and that growth is generally slowing down. While this is true, growth is still occurring, which means that any investments in the country are still a wise move. In many other countries where banks such as JPMorgan have a presence, growth is declining or has stopped altogether, making China one of the best markets to focus on. This is perhaps the most positive news I have heard form JPMorgan recently, as it finally seems that the bank is trying to do something sensible.
The cash injection is essentially a response to the “rising demand for financial services in the world’s fastest-growing major economy”. This is the second time that the company has had to inject cash into its Chinese unit, and as far as I am concerned this tells us that things are going well for JPMorgan in this regard. If it is able to make the most of this emerging market and its need for financial services, the company will be highly successful in the future.
According to a spokesman for the company, “The additional capital will better position the bank in the evolving regulatory environment and cement our [JPMorgan’s] commitment to clients in China". In addition, the capital that will result will also be put to a number of other uses, including: expanding the banks network of branches, developing new products, increasing the amount of corporate lending that the bank is able to participate in, and hire more employees in order to better the overall functioning of the bank. The Chinese unit of JPMorgan will soon open its seventh branch.
This move on the part of JPMorgan does something to distract our attention away from its substantial losses. This may be just what the company needs to turn itself around. However, many other banks will soon have the same idea, so it is hard to say at this point how much of a difference this Chinese investment will really make in the long run.
One of the company’s competitors, Citigroup (NYSE: C), recorded a loss in the region of $20 million following the late debut of Facebook (NASDAQ: FB) on the stock exchange. Essentially, due to a glitch in the system generally considered to be the fault of the exchange operator, Facebook debuted thirty minutes late. This caused investors and traders to make significant losses as the stock price dropped. Citigroup was one of these investors. Legal action will most likely be taken against the exchange operator that made the mistake in the first place. Citigroup looks to recoup these losses, as its stumbling stature will require some answers from investors.
JPMorgan was one of the companies recently involved in a foreclosure lawsuit and settlement, but in comparison to Bank of America (NYSE: BAC) it is recovering well. Out of the five companies that were involved, that also include Citigroup and Wells Fargo (NYSE: WFC), Bank of America is by far the company finding it the hardest to recover from the situation. The settlement has left it looking less than healthy making any of the other bank stocks mentioned here a better option for a smart investor to back in the current climate.
In other news, Wells Fargo has released a facility for Mac users that allows them to deposit a check and make payments from anywhere. The facility is especially beneficial for businesses that are frequently paid in check. Essentially how it works is that a Panini scanner can be used to send the check directly to Wells Fargo, cutting out time that would otherwise have been spent traveling to a physical bank branch to make the deposit. The move keeps Wells Fargo on the top of banking innovation, which has suited it just fine.
There is one financial stock that seems to actually be doing quite well right now. This stock is US Bancorp. Not only is it in the top 100 most valuable companies as according to the annual BrandZ study by market researcher Millward Brown, but it is also full of innovations that will help it to keep its position as a leader in the industry and ensure the loyalty of consumers for a long time yet to come. The innovation I refer to is the new app for Android phones that functions as an immediately accessible credit card. US Bancorp may be the go-to banking stock for the time being.
JPMorgan has been hit hard at home and that trend doesn’t look to be stopping anytime soon. With the media, politicians and consumers turning their backs away, JPMorgan will need some course of action to re-establish its name and prowess. The Chinese investment will help assuage investors of its profitability, but the rest of the equation remains in question.
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