JPMorgan Under Scrutiny Over LIBOR

JPMorgan Chase & Co. ( JPM - Analyst Report ) is facing probe from the Attorneys General and has received subpoena for its possible involvement in the manipulation of the London Interbank Offered Rate (LIBOR), according to a Reuters report.

Joint investigations by New York Attorney General Eric Schneiderman and Connecticut Attorney General George Jepsen are currently underway and in that course, subpoenas are being sent to the Wall Street giants.

The subpoenas are sent while investigations are underway, to probe any fraudulent and deceiving behavior on the company’s behalf, which might have played a role in the rigging of the LIBOR. In addition to JPMorgan, Deutsche Bank AG ( DB - Snapshot Report ) and Barclays Plc. ( BCS - Snapshot Report ) have also been subpoenaed in this New York-Connecticut joint probe.

Our Take

As a matter of fact, in addition to JPMorgan, several of the big banks including Bank of America Corp. ( BAC - Analyst Report ) and Citigroup Inc. ( C - Analyst Report ) are under the strict scrutiny of the regulators around the world in connection to the LIBOR manipulation scam.

Based on estimates of rates at which banks find it appropriate to borrow from each other, the LIBOR is determined. Since it is used as a benchmark for several lending transactions around the world, any manipulation would impact billions of users around the globe.

Hence, the regulatory authorities are investigating the matter thoroughly and plan to put forward an exemplary judgment so as to put an end to such shrewd practices in the future, bring justice to the sufferers and punish the wrongdoers.

Currently, we remain skeptical for JPMorgan and wait to see what the future beholds. If it is found guilty in this LIBOR scam, it is liable to be fined by authorities. Notably, in June, Barclays already faced a fine of $450 million by certain U.S. and U.K. authorities for rigging the rate.

JPMorgan, otherwise, boasts of a robust business diversification and sturdy capital levels. Yet, pressure on net interest margin and regulatory issues might mar the company s results in the upcoming quarters.

The shares of JPMorgan retain a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we have a Neutral recommendation on the stock.