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JPMorgan to Minimize Business Risk

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Recently, Wall Street Journal reported that JPMorgan Chase & Co. (JPM - Free Report) , in order to strengthen its anti-money laundering stance and restrain business relationships with companies having dubious lending and other practices, has initiated an internal review of such client business relations. This will expectedly lead to termination of its business relations with companies including pawn shops, payday lenders, check cashers and car dealerships.

Though this will reduce complexities and risks, it is expected to lead to considerable decline in JPMorgan’s top line. The company has already exited business relationships with some clients such as Texas-based Cash America International Inc. , which was revealed by Cash America in a regulatory filing in Jul 2013.

Moreover, JPMorgan will terminate its relationships with other clients going forward. The majority of the company’s business relationships that are under review collect a large amount of cash and have a high risk of being accused of money-laundering and fraud.

the latest move by JPMorgan comes at a time when banks and other financial institutions have been mandated by regulators to improve their anti-money laundering controls, while many states in the country have increased their payday-loan scrutiny.

Notably, JPMorgan is in the process of shedding its non-core and unprofitable operations. In the last few months, the company has announced several such plans including closure of the student lending business, exit from physical commodities trading operation and reduction of dealings with many foreign correspondent banks.

We believe that JPMorgan’s efforts to focus on core operations will go a long way in improving its financial performance. Though the measures undertaken by the bank will adversely affect its revenues in the near term, the company’s organization will be less complex in the long run. Moreover, JPMorgan is expected to be better equipped to brace any future economic crisis.

Currently, JPMorgan carries a Zacks Rank #3 (Hold). Some better-performing finance stocks include Capital One Financial Corp. (COF - Free Report) and Zions Bancorp. (ZION - Free Report) . Both of these have a Zacks Rank #2 (Buy).

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