Share Buybacks Have Created a Dangerous Bubble in Wall Street Bank Stocks

JP Morgan Chase and Bank of America have both spent tens of billions of dollars buying back their own stock over the past five years.

By Pam Martens of Wall Street on Parade

JPMorgan Chase is a Wall Street bank that has pleaded guilty to three felony counts in the past five years and lost at least $6.2 billion of its depositors’ money trading high-risk derivatives in London. And yet, somehow, the bank has a market capitalization (the value of all of its shares outstanding) that makes it among the most valuable companies in the Standard & Poor’s 500.

The serially fined and investigated bank, as of yesterday’s close, has a market value of $342.817 billion which is $110.8 billion more than Boeing – one of the most sophisticated engineering companies in the world, producing commercial jet airplanes, military aircraft, rockets and satellites for customers around the globe.

Looking at the bizarre situation with a wider lens, if you add up the market cap at yesterday’s market close of General Motors ($54.97 billion), GE ($90.199 billion), Ford ($33.454) and IBM ($124.977 billion), there’s still $39 billion left over before you reach JPMorgan Chase’s market cap.  A commercial bank is not supposed to be more valuable than the industrial backbone of the country. It’s not supposed to be more profitable than the backbone either. And yet, somehow, JPMorgan’s net income for 2018 was $32.5 billion, more than three times that of Boeing.

Another way to look at this market distortion is that JPMorgan Chase is little more than a utility company – existing primarily to offer a public good like making prudent loans to sound businesses in order to create good-paying American jobs through business innovation, keep the nation globally competitive, and U.S. industry and the economy humming along.

Another Wall Street bank that now ranks among the most valuable companies in the S&P 500 is Bank of America, parent of retail stock brokerage firm Merrill Lynch, which teetered into the bank’s arms during the 2008 financial crash. As of yesterday’s close, Bank of America had a market cap of $277.509 billion.

Both JPMorgan Chase and Bank of America own and operate Dark Pools where they trade the shares of their own bank and shares of their peer banks. (See Wall Street Banks Are Trading in Their Own Company’s Stock: How Is This Legal?)

A dark pool is a private, unregulated trading venue that functions like a stock exchange by matching buyers with sellers – but it does so in the dark, without showing its bids and offers on stocks to the public. That has the potential for a great deal of price manipulation

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