Conflict, illegal acts and scandal have always been a part of the industry's landscape and always will be. When new laws are enacted, firms get to work right away to figure out how to work around them. Occasionally there is scandal along the lines of what is alleged with LIBOR. Once this scandal is resolved there will be something else that pops up. It is inevitable when young, smart, aggressive bankers see the potential for bigger pay checks.
It is likely that most of the banks will get away with what they have done by simply paying fines that they write down against their earnings. JPMorgan has recently paid $2 billion for its involvement with the Madoff scandal, $13 billion for toxic mortgages and $920 million for losses connected to Bruno Iksil, the London Whale. None of this prevented JPMorgan's stock from going up 26% so far in 2013.
Occasionally a large financial institution will fail -- recall Bear Stearns, HBOS and Wachovia -- although it is rare. It would intuitively seem that there must be a limit to the number of billion dollar checks that can be written, but for now these settlements don't seem to be having an impact.
Investors could reasonably become concerned that there is a limit to how many fines the bigger banks could pay without collapsing.
But there are other segments within the financial sector that generally avoid scandal and offer tremendous return potential.
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