Another day, another government probe into the banking industry. JPMorgan Chase (NYSE:JPM) admitted in a filing yesterday that it is the target of a new-ish Department of Justice investigation into its mortgage-backed securities selling practices. As a result, the company lifted the higher end of its estimate for losses related to the many legal proceedings it's currently engaged in, by 13% from the previous quarter's $6.0 billion to $6.8 billion.
At this point, it's hard to keep track of all the legal bullets flying back and forth between the various arms of the federal government and the nation's big lenders. Bank investors are tiring of these seemingly endless battles. Either that or they're shrugging off the news in light of the strong recent performance of the sector's rock stars. To put the latest JPMorgan Chase investigation-of-the-moment in perspective, that $800 million bump in potential legal-woe losses is barely a drop in the bucket of the $10.7 billion net interest income it earned in Q2. The bank's stock is down in the wake of the DOJ news, but not by much.
Nor does there seem to be any knock-on effect with the two other prominent financial giants fighting a swarm of probes and lawsuits. Both Bank of America (NYSE:BAC) and Citigroup (NYSE:C) are trading slightly higher on the day. This is likely not based on fresh news, as there is little of note for either company. Save for, perhaps, the strong performance of Citi's Polish unit Bank Handlowy. The Central European lender reported Q2 results that saw it slice provisioning for bad loans for the first time in over five years while posting a 30% hike in net profit.
Elsewhere in the sector, Wells Fargo (NYSE:WFC) announced it is teaming up with debt slinger American Express (NYSE:AXP) to offer consumers a range of credit cards accepted on the latter's global merchant network. Does this mean that Wells is running away from mortgages, the business that has been feeding it so well lately but will inevitably start cooling?
Probably not, but the AmEx deal is an encouraging sign that the company recognizes the need for diversification and is doing something about it. Credit cards are a promising direction to veer in, as their loan yields are several times that for mortgages. There's plenty of room for growth, too. According to figures cited by The Wall Street Journal, Wells Fargo had $33.6 billion in outstanding credit card loans last year compared to the fat $126.5 billion of the sector's champ, JPMorgan Chase. Those numbers make Morgan the top issuer in the country, with Wells Fargo lagging significantly behind at No. 7. The underdog in the race is no doubt eager to close that gap.