The Zacks Analyst Blog Highlights: JPMorgan Chase, UBS, HSBC Holdings, Bank of America and General Motors

Zacks Equity Research

For Immediate Release

Chicago, IL – January 09, 2014 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the JPMorgan Chase & Co. (NYSE:JPM-Free Report), UBS AG (NYSE:UBS-Free Report), HSBC Holdings Plc (NYSE:HSBC-Free Report), Bank of America Corp. (NYSE:BAC-Free Report) and General Motors Company (NYSE:GM-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Wednesday’s Analyst Blog:

Madoff Suit Costs JPMorgan $2.6B

In a further resolution of its legal issues, JPMorgan Chase & Co. (NYSE:JPM-Free Report) agreed to pay nearly $2.6 billion to settle several charges pertaining to lapses in reporting suspicious activities at Bernard L. Madoff Investment Securities LLC (:BLMIS). Following this announcement, the company’s share price fell during intra-day trading due to negative investors’ sentiments. The company’s share price closed at $58.32 on Jan 7, down 1.2% from the previous day.

Madoff had accounts with JPMorgan more than two decades before being arrested in 2008 for running a Ponzi scheme that duped investors of billions of dollars. The penalty of $2.6 billion is related to the bank’s settlement with various governmental regulators as well as other private parties to resolve civil litigation related to BLMIS.

As part of the settlement, JPMorgan entered in to a Deferred Prosecution Agreement (:DPA) with the U.S. Attorney’s Office for the Southern District of New York, under which the U.S. Attorney will defer any prosecution of JPMorgan for a two-year period. Hence, the company agreed to pay $1.7 billion to the government as a non-tax-deductible payment.

Additionally, under the terms of DPA, JPMorgan admitted the allegations leveled against it, namely its failure to maintain a proper anti-money laundering program. Further, the company violated the Bank Secrecy Act as it did not file a suspicious activity report (SAR) in the U.S. in Oct 2008 with respect to BLMIS.

Further, the Financial Crimes Enforcement Network slapped JPMorgan with a penalty of $461 million for not detecting and reporting suspicious transactions related to BLMIS. However, this amount is not required to be paid as the company is already making similar payments to the U.S. government.

Moreover, JPMorgan will pay $350 million as Civil Money Penalty to the Office of the Comptroller of the Currency (OCC) in connection with various Bank Secrecy Act/Anti-Money Laundering deficiencies.

Separately, JPMorgan will pay $325 million to the trustee appointed by the court for BLMIS. This will absolve the company of all claims that could crop up from transfers received directly or indirectly from BLMIS. Also, the company will make payments of $218 million to the class action plaintiffs for exchange for a release of all damages claims related to BLMIS. Both these settlement amounts (subject to court approvals) will be distributed to BLMIS fraud victims.

Though significantly reserved to meet the financial terms of the settlement, JPMorgan will likely be adding $400 million (pre-tax) of litigation reserve when it announces the fourth quarter results on Jan 14. Notably, the settlement will lower the company’s fourth-quarter net income by $850 million as the settlement amount is non-tax-deductible.

Notably, JPMorgan had set aside nearly $9 billion to cover legal costs in the third quarter. This had led the company to report a rare loss 17 cents per share in the said quarter.

Despite having settled the Madoff case, we believe that JPMorgan’s run-in with regulators and other investigation agencies will likely continue in the near term. The company continues to face roughly eight government probes. Hence, higher litigation costs continue to weigh on the company’s performance, going forward.

With the announcement of this settlement, the Madoff trustee will be recovering more than $10 billion or 59% of the total amount lost, for victims. However, the trustee is still pursuing claims worth roughly $3.5 billion from UBS AG (NYSE:UBS-Free Report), HSBC Holdings Plc (NYSE:HSBC-Free Report) and UniCredit SpA, all of which have been accused of benefiting from the Madoff fraud.

Currently, JPMorgan carries a Zacks Rank #3 (Hold). A better-ranked finance stock worth considering is Bank of America Corp. (NYSE:BAC-Free Report) with a Zacks Rank #2 (Buy).

GM Reports Record Sales in China

General Motors Company (NYSE:GM-Free Report) and its joint ventures witnessed an 11.4% year-over-year increase in sales in China to 3,160,377 units in 2013. The record high sales were driven by high demand for all the major brands of the automaker.

China is the largest market of General Motors. Although the demand for commercial vehicles in the nation declined in 2013, the diverse product portfolio of the company helped sustain strong growth.

The healthy sales can be attributed to record high domestic sales of 1,512,000 vehicles by Shanghai GM, up 13.6%. SAIC-GM-Wuling also achieved record high sales of 1,584,920 units in China, reflecting a 9.7% year over year increase. Meanwhile, the domestic sales of FAW-GM improved 6.3% to 59,092 vehicles.

Sales of General Motors’ Buick brand surged 5.7% to 809,918 units in China. The record high sales were driven by high demand for the original Excelle family as well as Excelle XT and GT.

Chevrolet also witnessed all-time high sales of 652,077 vehicles, up 8.5% year over year. The Cruze, Sail and Malibu models of the brand generated strong sales.

Meanwhile, a 24% increase in the sales of the SRX led to historical high China sales for General Motors’ Cadillac brand. Sales surged 66.6% to 50,005 units during the year. Apart from SRX, XTS also generated strong sales for the brand.

Meanwhile, Wuling and Baojun also had record high sales of 1,484,422 and 100,498 units, respectively, during the year.

Total exports to other emerging markets amounted to 83,145 units, up 7.7% over 2012. As a result, total sales of Shanghai GM, SAIC-GM-Wuling and FAW-GM amounted to 1,575,167 units, 1,603,580 units and 60,410 units, respectively.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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