NEW YORK (TheStreet) -- You may have largely forgotten about the London Interbank Offered Rate scandal from over five years ago, but the National Credit Union Administration hasn't. Its lawsuit against JPMorgan (JPM), Goldman Sachs (GS), Morgan Stanley (MS), Credit Suisse (CS), Barclays PLC (BCS) and eight other banks couldn't come at a worse time for shareholders.
Curt Beilke, a businessman I know, has said to me, "Sometimes you can win by losing" and that's exactly how I would describe the situation for JPMorgan and Wells Fargo (WFC).
JPMorgan's shareholders have already taken a trip to the woodshed by regulators over the "London whale" fiasco, and they may soon take a trip with Wells Fargo over Wells' handling of mortgages.
In theory, Libor affects so many parties that if NCUA allegations result in large damage awards, others will become emboldened to join the feeding frenzy and the newly stamped "systemically important" banks could face another liquidity crisis.I find it difficult to imagine central banks allowing bank crisis 2.0 to play out, especially against banks that carry their systemically important badge with them wherever they go. That leads me to conclude that bank shareholders will feel an impact, but will quickly bounce back. The central banks have too much leverage over all possible plaintiffs to allow the lawsuits spin out of control. That said, many of the government regulators whose goal is or should be to protect investors have turned into predators shareholders fear. Almost a billion dollars in fines allegedly as a result of two or three employees is miles removed from "we're from the government and we're here to help keep your bank in strong financial shape." The grotesque fines send the message of, "If any of your 10,000-plus employees fails to perform as we shall dictate, we will squeeze every dime out of you we can." Maybe it's just me, but the recent regulatory actions against shareholders seem more like a mob protection racket than guardian angels looking out for investors. I remain bullish on the banking sector, but unfortunately I expect increased turbulence during the next six to 12 months. If you're a dividend-collecting bank investor and don't want to sell -- even if you're growing tired of the stock price gyrating up and down faster than a yo-yo -- consider selling covered calls. The recent increase in volatility allows greater premium collection and the options act as a partial hedge that lowers damps the yo-yo effect. At the time of publication, the author had no position in any of the stocks mentioned. Follow @RobertWeinstein This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV