So the financial titans will continue to have their fingers in big helpings of the derivatives pie. But the question remains as to whether or not this is the time to invest in the big banks again.
As for JPMorgan Chase & Co. (NYSE:JPM), CEO Jamie Dimon recently got a vote of confidence from shareholders as they decided not to split his dual roles as Chairman and CEO. But trying to determine what the value of shares will be as the financial sector continues to recover is not an easy task. Moreover, there are other regulatory and legal uncertainties on the horizon – in particular the ongoing Libor rigging probe.
Further, Goldman Sachs Group, Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS) wrote down hundreds of billions of dollars of bad mortgage backed assets in the wake of the financial crisis. And their derivative transactions are not easy to value. While the two firms appear to have weathered the storm of the wave of legal actions that surfaced in the wake of the financial crisis, more unknown regulatory risk remains – like the Volcker Rule.
In short, investors considering the financial sector are probably better off looking at community banks that retain and service their mortgage portfolios and only rely on swaps as legitimate hedges.
The Bottom Line of the New Swaps Rules
The new rules will shed some light on the derivatives market and there will be tighter regulatory scrutiny of deals conducted on the swap execution facilities. And this could mitigate the chances of busted swap deals like the “synthetic credit default swap” blunder that caused a multi-billion dollar loss for JPMorgan Chase & Co. (NYSE:JPM) in 2012.
At the same time, leading financial firms historically find innovative ways to create new products and conduct different types of deals as new trading technologies emerge. So the new rules might work to mitigate the risks that led to the financial crisis of 2008. But it’s not the last financial crisis that matters, it’s the next one.
The article Big Banks Catch a Break on New Swaps Rules originally appeared on Fool.com and is written by Kyle Colona.
Kyle Colona is a freelance writer from the New York area with a broad background in legal and regulatory affairs in the finance sector. His extensive body of work is accessible on the web. Mr. Colona is not a financial adviser and he does not hold a position in the stocks mentioned herein. This article is for informational purposes only and should not be construed as financial advice.
The Motley Fool owns shares of JPMorgan Chase & Co. Kyle is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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