JPMorgan Chase & Co. (JPM) has ushered in some good news for its investors. In its latest quarterly filings, the company stated that it has received approval to restart share buybacks and the litigation related to Bear Stearns Cos. (acquired in 2008) is now settled and requires court approval.
JPMorgan stated that the Federal Reserve has granted approval to resume its share repurchase program in the first quarter of 2013, following the review of the company’s capital plan. Therefore, JPMorgan will be repurchasing $3 billion worth of shares during the above-mentioned period.
The need to resubmit the capital plan emerged owing to the huge trading loss in JPMorgan’s CIO division in May. Following this, the company temporarily suspended share repurchase program to rebuild its capital levels and meet the stringent regulatory capital.
Another overhang that got resolved is the settlement of a lawsuit that accused Bear Stearns of repackaging and selling residential loans to the investors. The investigation was being conducted by the Securities and Exchange Commission (SEC). Though the settlement deal is subject to the final approval of the District Court, the settlement amount is not disclosed.
The SEC was conducting an inquiry into the allegations against Bear Stearns that claimed that after receiving compensation from the loan originators for failed mortgages, the firm did not transfer the same to a trust that was managing residential mortgage-backed securities (RMBS). The SEC was also probing disclosures made to the investors regarding the renegotiated loans.
We believe the removal of these overhangs will prove to be modestly positive for both the investors and the company. Yet, JPMorgan continues to encounter many other probes and lawsuits from the investors and regulators pertaining to its role during the crisis. Along with these, the company is facing investigations for the trading debacle, its alleged role in rigging the LIBOR rates and for money laundering.
However, based on JPMorgan’s strong fundamentals, we anticipate continued synergies from a reduction in reserves for future losses, business diversification, steadily improving retail banking performance and strong capital position.
JPMorgan currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. However, one of its peers, Bank of America Corporation (BAC), retains a Zacks #3 Rank (short-term Hold rating).
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