Levine on Wall Street: JPMorgan Isn't Done Yet
Jamie Dimon takes a meeting
Dimon met with Eric Holder yesterday to negotiate about all the things JPMorgan Chase is being sued for. The headline on this DealBook piece is "JPMorgan Urged to Pay More in Mortgage Deal," which I guess is how deals work. But actually "the size of the fine is not the central negotiating point for the bank: JPMorgan is instead focused on using the wide-ranging pact to resolve many of the mortgage-related investigations it faces." DealBook has a good rundown of all those investigations, as does Matt Yglesias, who puts it this way: "The problem Morgan is running into is that right now instead of settlements cauterizing investigations and letting the company move on with its life, each investigation seems to spawn new investigations." JPMorgan is a perpetually renewable resource for regulators and plaintiffs: It seems to have done more bad things than you could sue it for in one lifetime, and it has essentially unlimited money. Regulators have to have something to fill their days, and how could they give up such a juicy source of activity for a mere $11 billion fine?
On the one hand: Goldman Sach's credit analysts initiated on the company at "underperform" earlier this week, suggesting that you stay away from its debt. On the other hand: Goldman's investment bankers are leading a stock offering to try to raise $1 billion for the company. This discrepancy is causing some pointing-and-laughing, but it's probably better read as just proof that investment banks really do have Chinese walls between their analysts, who call it like they see it, and their bankers, who call it like their clients want. Clients, of course, aren't as concerned about research independence, and plenty of clients have dropped their bankers the day before the deal because of an errant research report. JCPenney stayed with Goldman, perhaps out of loyalty, or a staunch belief in the value of unbiased research, or desperation. Or perhaps because there is nothing really inconsistent here: You probably should stay away from the debt until they raise more equity. In fact, the research analysts said that a key upside risk to their sell recommendation was that the company would do a big stock offering and make the bonds safer. So that underperform credit rating was practically a sales pitch for a stock offering.
Bill Ackman gets a win
Part of why JCPenney needs to raise a billion dollars is that it performed rather poorly under its previous CEO, Ron Johnson. Johnson was hand-picked by activist hedge fund manager Bill Ackman, who recently sold his big JCPenney stake at a loss. But he got right back in the saddle: In July he announced a 9.8 percent stake in Air Products, which makes ... air ... products ... and yesterday he got a quick win: Air Products announced that it is adding new directors and that its CEO is leaving, under pressure from Ackman. Replacing a CEO is a particularly hard form of shareholder activism, since the CEO tends to take calls for his head rather more personally than, say, demands for a dividend recap or the sale of a division. So it's a good sign for Ackman that he was able to convince Air Products to do what he wanted do quickly and easily, especially given his recent track record with replacing CEOs.
If someone calls to sell you some palladium, hang up
That seems to be the lesson of this Commodities Futures Trading Commission action against the Yorkshire Group, which "solicited retail customers by telephone to buy physical precious metals such as silver and palladium in off-exchange leverage transactions." Yorkshire allegedly offered to buy people gold and palladium if they put up 25 percent of the purchase price, with Yorkshire providing the rest of the money for interest. That seems to be illegal: The rule is that you can't offer a retail investor any investment in any commodity "on a leveraged or margined basis" except on a regulated exchange. This doesn't seem like that bad a violation? Except of course that Yorkshire also ended up with all of the clients' money -- "Defendants' customers for the most part could not break even on their investments, let alone earn a profit, because much of their principal investment was consumed by commissions and fees" -- and it's easier to prove that you did off-exchange transactions than that you intentionally did transactions that would take all your customers' money.
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Matthew S Levine at firstname.lastname@example.org