It’s no glowing endorsement to regard JPMorgan Chase (NYSE: $JPM) as the cleanest shirt in a dirty hamper. Yet I always regard that as an appropriate label, given the list of the villains that created the financial crisis. Today, however, that sentiment changed. Where do we begin?
It would be a gross understatement to say that the now infamous “London Whale” trade, which saw the bank lose more than $6 billion in complicated maneuvers, has knocked some shine off JPMorgan’s armor. Criminal indictments have been filed against two former traders accused of attempting to cover up the losses and JPMorgan has been implicated for what regulators consider “manipulative market practices.”
The bank opted to settle these charges for $13 billion, which includes no admission of wrongdoing. Still, given the strength of the bank’s balance sheet and its deep pockets, I do question why JPMorgan resisted the fight. Not to mention, the settlement, which still leaves the door open for other criminal cases, does not release JPMorgan or any individuals from further prosecution related to the mortgage scandal.
Last week we learned that the bank’s main subsidiary entered into a deferred prosecution agreement for its role in the Madoff affair, which led to an estimated $18 billion in investor losses. (So I doubt anyone still regards Jamie Dimon as the “smartest guy in the room,” much less the industry’s best manager.)
All told, after spending much of 2013 dusting stains off its image, JPMorgan has a laundry list of reparations to account for before regaining consumers’ trust. Investors, on the other hand, weren’t swayed by these distractions, given the bank’s impressive 2013 stock gains of 36%, which bested Citigroup (NYSE: $C) and matched the strong performance of Wells Fargo (NYSE: $WFC).
Wall Street will conveniently adopt a very short memory as long as companies apologize with higher revenue and profits. In that regard, JPMorgan apologized as well as anyone. With fourth-quarter earnings results due out Tuesday, the bank will look to end the year in the Street’s good graces and begin its cleansing by posting strong results and improved guidance.