Criminal Investigation of JPMorgan Chase Executives

According to the Wall Street Journal, sources report that federal prosecutors are focusing a criminal investigation into the dealings of executives at JPMorgan Chase (NYSE: JPM). The investigatory effort has to do with the executives' packaging poor-performing mortgages into securities, then marketing them as high-performing products. The investigation initially began under Attorney General Eric Holder. Now that he has left, investigators under Attorney General Loretta Lynch have said they are intensifying their investigation with a goal to file charges either before the end of President Obama's term or before the expiration of the statute of limitations.

If criminal charges are ultimately filed, JPM can expect to lose a number of customers due to the sensitive and confidential nature of banking.

Litigation Expenses Since 2008

Like other large banks, JPMorgan has had significant litigation expenses since 2008 due to multiple government investigations into their activities. In May, the bank was fined $2.5 billion for manipulating the Euro currency market, along with Citigroup (NYSE:C), Barclays (NYSE:BCS) and the Royal Bank of Scotland (NYSE:RBS). A total of $5.9 billion was assessed against six large banks by the Attorney General's Office. The frequency of litigation has forced JPM to set aside $37 billion just for litigation costs.

Recent Results, Predictions and Comparison With Competitors

JPM's third quarter report showed that its revenues fell by 6.4 percent. The bank's earnings per share was $1.32, shy of the $1.38 analysts had predicted. At the time, JPM said the slump was due to falling trading and mortgage results. The bank's investment bank chief, Daniel Pinto, recently said that although the Federal Reserve is expected to raise interest rates in December, the move is unlikely to provide much help to the bank. He predicted that the company would show a fall of about 15 percent in trading volume in the 4th quarter.

Other mega banks, such as Bank of America (NYSE:BAC), are also doing poorly. Like JPM, Bank of America has had significant litigation expenses since 2008 and has been forced to set aside $70 billion for litigation reserves this year. Since 2008, the bank has paid more than $219 billion in litigation expenses, fines and penalties.

Paris Attacks and Stocks

Following terrorist attacks like the recent one in Paris, investors are often jittery, causing markets to fall. As a global investment bank with holdings around the world, this could put even more pressure on JPM's stock prices. While the markets in the U.S. and Europe have so far shown resilience since the attacks, the Asian markets dropped in response to the attacks. If more attacks occur, JPM's stock is likely to fall along with the stocks of other global investment banks.

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(Nasdaq.com)

Recommendation: Shift To a Strong Regional Bank

With ongoing criminal investigations, a history of significant litigation, slumping trading and the potential disruption to the global economy due to terrorism, now is not a good time to purchase shares of JPMorgan Chase. Investors wanting to invest in financials may instead want to look towards a strong-performing regional bank rather than one on Wall Street.