Goldman Sachs, Bank of America, or JPMorgan: Murky Prospects
Who could have predicted BP could out-villain the finance gods of Wall Street? The future’s uncertain and the end is always near, as rock god Jim Morrison proclaimed.
This is especially true for Wall Street, as the final form of the finance reform bill in Congress remains a big unknown.
Also at play are reform efforts at the global level. Discussions concerning new capital and liquidity requirements for banks worldwide, held in early June in Basel, Switzerland, are now delayed to “assess impacts” (translation: wear down resistance) as are discussions concerning a bank levy to cover future bailouts.
Another controversial issue at large – restricting the definition of capital in new capital and liquidity reserve requirements to exclude borrowed funds, tax reserves, and expected future cash inflows.
So while bankers argue too many restrictions will restrict capital available to grow the economy, regulators push for more stable GDP growth and a lower risk of future financial crises.
Here’s an interesting take from JP Morgan Chase in a NYTimes (NYSE: NYT) article:
“… analysts for JPMorgan Chase estimated that banks would need to raise prices by 33 percent to maintain profits. They also predicted that the Basel proposals would reduce the gross domestic product of the United States by “a multiple” of $30 billion.
That statement, if true, is sure to scare off investors. And like the Gulf spill, the waters remain murky. Here’s a closer look.
Goldman Sachs Group Inc (NYSE: GS)
Comments: Things really hit a snag in April when the Giant Vampire Squid got hit with a securities fraud action from the SEC. The stock plummeted, although it appears to be holding its own at about the $135 level. Goldman has the largest exposure to the new proprietary trading rules (about 10% of revenues), which puts future earnings at risk. But although stochastic is showing oversold, the stock is trending higher and looks undervalued, trading volume is too light to make a leap.
JP Morgan Chase & CO (NYSE: JPM)
Comments: JPM has had a large sell-off recently and although oversold, has not established a clear trend. The stock is still showing weakness with the broader market. Proprietary trading for JPM is insignificant at about 1 percent of revenue. The stock looks overvalued compared to its peers. Not a good buy at the moment, unless you worship CEO Jamie Dimon in the good ole Jim Jones way.
Bank of America (NYSE: BAC)
Comments: A possible bottom forming for BAC but again, volume is too light to establish a trend. Like JPM, only about 1 percent of revenue from proprietary trading. The stock is trading at a high earnings multiple and looks overvalued. A possible short-term trade near earnings time in July for the brave-hearted.
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