JPMorgan Chase & Co. (JPM), Goldman Sachs Group, Inc. (GS): How Is This Scandal Affecting Your Investment in Financials?

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Bloomberg has landed itself in hot water recently for a scandal involving the use of information gleaned by its reporters from its ubiquitous terminals. Bloomberg reporters had been “spying” on clients by accessing usage information from the clients’ terminals and using this information to track down stories. This practice angered Goldman Sachs Group, Inc. (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM), who have complained to Bloomberg. Even the Federal Reserve is examining whether its top regulators were subject to the snooping. Bloomberg has since cut off the information to its reporters, and said that it will prevent any further access of such information by its reporters in the future. However, there is a question as to whether Bloomberg’s practice rises to the level of fraudulent, or if it was merely unethical. Furthermore, to what extent were JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs, or other Bloomberg clients hurt by the practice?

JPMorgan Chase & Co (NYSE:JPM)

To be fair, the Bloomberg reporters only had access to limited information. By means of the option known as the Z function, reporters could see who had logged onto their terminals, and when they had logged in. Reporters could, in addition, see generally what functions the users were looking at, such as the news, corporate bond indices, or equities indices, as well as help desk chats. The reporters could not see the specifics of what the subscribers had viewed, including trades, securities or portfolios. However, in the hyper competitive world of Wall Street, clients are understandably concerned that even this general information would provide a glimpse into the possible strategies of the companies, which could be used against them. Reporters also had access to general analytic information showing how often articles had been accessed. This ostensibly helped the reporters identify which types of articles were popular amongst its clients, and helped focus the reporters on future story topics.

The use of the Z function was even implicated in the JPMorgan Chase & Co. (NYSE:JPM) London Whale scandal. Trader Bruno Iksil made large bets on credit default swaps that ultimately led to losses estimated to be in excess of $6 billion for the bank. Bloomberg reporters used the information to determine when certain traders had last accessed the terminals, and questioned whether they were still employed by the bank. Although JPMorgan Chase & Co. (NYSE:JPM) complained about this use of information, no formal complaint was ever lodged.

From a market perspective, it is difficult to tell if the individual investor is either helped or hurt by the scandal. Bloomberg would be the company most likely impacted by matter. However, Bloomberg is a private held company, albeit a large one, with estimated revenue of $7.6 billion in 2011. It was founded in part by Michael R. Bloomberg in 1982, more widely known now as the mayor of New York City. It is estimated that Bloomberg has 315,000 terminals around the globe, with a yearly subscription fee of around $20,000. Since the company is not publicly traded, it is difficult to tell what impact, if any, this scandal will have on its revenue, and there is no public share price to show the reaction of the market.

JPMorgan Chase & Co. (NYSE:JPM)’s stock price appears to not have been impacted by the scandal, as it is up 9.25% in the last month, trading around $53.50 after touching a near term high of $55.50 recently. JP Morgan currently sports a P/E ratio of 9.55, and a dividend yield of 2.84%.

Goldman Sachs Group, Inc. (NYSE:GS) is similarly up 9.88% in the last month, and currently has a P/E ratio of 11.24 with a dividend yield of 1.22%.  It is currently in the midst of buying Ebix in a potentially lucrative deal.

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