Fearful of government fines for money laundering and increased compliance burden, JPMorgan Chase & Co. (NYSE:JPM) is closing the accounts of current and former foreign government officials, the Financial Times reported Tuesday.
The larger issue isn’t government tightening the screws on money laundering concerns, in the wake of HSBC Holdings plc (ADR) (NYSE:HSBC)’s repeat offense of laundering money for drug cartels and terrorists. According to Rafferty Capital Markets analyst Dick Bove, the government is “committed to breaking the company.”
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On closing the diplomat’s bank accounts, “the linkage here is clear,” Bove writes in an update today. “The bank is moving as quickly as possible to avoid another set of multi-billion fines from the government.”
JPMorgan: Account closure impacts foreign diplomats
3,500 foreign accounts are being closed, according to the report, and they include present and former government officials as well as foreign embassies. According to the FT article, JPMorgan Chase & Co. (NYSE:JPM) is closing bank accounts and credit cards of the officials because of increased compliance costs. Banks are required to submit accounts of “politically exposed persons” to added scrutiny. According to Bove the move likely “outraged” diplomats who will speak with their governments making it more difficult for the bank to conduct business in other profitable areas. These other areas could include the highly lucrative SWAPs market, where governments essentially purchase insurance against a rapid rise in interest rates. The ban does not apply to JPMorgan’s wealthy private bank clients.
Bove is nonetheless positive on the stock as the US government, in his eyes, is hell bent on “breaking” the bank.
“Government is committed to breaking the company and will not stop until it is successful in doing so”
“The reason that I continue to rate JPMorgan Chase & Co. (NYSE:JPM) a Hold is not because I question the company’s leadership or its ability to generate high returns if left alone,” he wrote. “It is because the government is committed to breaking the company and will not stop until it is successful in doing so.”
Bove vents his anger at the government, while failing to mention the root cause of the government fines is criminal behavior that should be addressed. “The actions being taken by the bank in response to fear of another billions in fines is deeply harmful to the institution and to its shareholders (99.5% of whom are individuals directly and in-directly). These actions by the government will not stop. The Brain Drain at the bank will not stop. The businesses that it must shutdown and/or avoid will not stop happening, either.”
Perhaps if large banks operated within the law they wouldn’t have such problems?