These Banks Did a Bad Thing – Let’s Make Some Money as They Fall

Africa’s richest woman, several Russian oligarchs, a disgraced Kazakhstani banker, and a former Congolese warlord certainly make for a motley crew.

All have had run-ins with the law. Several are currently in hiding or in exile.

And this week, they’ve all made life even harder for the already battered big banks.

Because on Monday, leaked documents from the U.S. government’s Financial Crimes Enforcement Network revealed more than $2 trillion in suspicious transactions that big banks did nothing to stop.

We’re talking about money coming from money laundering, evading U.S. sanctions, fraud, and of course, corruption.

Even North Korea and Venezuela have been moving money using these banks. Often, the documents show that the banks themselves flagged the transactions as suspicious, but still let them through.

This has already pushed bank stocks lower. And we’re nowhere near the bottom for banks.

See, things are only going to get worse for them.

And that means you have an opportunity…

Big Banks Once Again Caught Laundering Money

JPMorgan Chase & Co. (JPM) is the largest bank in the U.S., and the seventh-largest in the world. With that kind of reach and clout, there’s going to be a temptation to cut corners.

So maybe it shouldn’t have been a huge shock when in 2011, JPMorgan promised the U.S. government in a legal settlement that it would do better at checking for and stopping money laundering.

But then JPMorgan was caught doing it again, and made another settlement in 2013, again promising to clamp down on money laundering.

The next year, the bank settled again, with a third promise to stop laundering money.

Unfortunately, the third time wasn’t the charm.

In the leaked reports from the U.S. Financial Crimes Enforcement Network (FinCEN), five global banks are shown to be profiting from transactions they knew were suspicious. JPMorgan is one of those banks. The others are HSBC Holdings plc (HSBC), Standard Chartered plc (SCBFF), Deutsche Bank AG (DB), and Bank of New York Mellon Corp. (BK).

The report covers over $2 trillion in transactions between 1999 and 2017, based on more than 2,100 “suspicious activity reports” (SARs) filed by the banks themselves or other financial organizations. The law requires banks and other financial institutions to file an SAR when they think clients are using them to commit crimes.

To be clear, it’s legal to file an SAR and still let the transaction go through. After all, the bank can suspect foul play without being certain.

But when a transaction is a clear case of money laundering, embezzlement, or corruption, the bank is supposed to flag it and freeze it. And when it comes to people and countries under U.S. sanctions, often no financial transaction is allowed to take place at all.

On the other hand, these transactions tend to be very large, making the fees banks can collect quite tempting…

As you saw, JPMorgan has shown that it can’t resist that temptation. And it’s not the only one. In 2012, HSBC had to pay the U.S. $1.9 billion for helping Mexican and Colombian drug cartels launder $881 million. As part of that settlement, HSBC also agreed to step up its internal checks on suspicious activity.

As this latest leak shows, that didn’t stick…

As If Assisting in the Looting of Countries Wasn’t Enough, Now the Banks are Helping North Korea

As I mentioned, the FinCEN leak reveals over $2 trillion in suspicious transactions at these five banks. Deutsche Bank alone accounts for more than half of that, at $1.3 trillion.

Among that $2 trillion are billions looted from the citizens of Malaysia and Venezuela. Russian oligarchs appear to have moved millions of their ill-gotten gains to launder them outside of Russia. Not to mention organized crime, warlords, and terrorism.

Even North Korea and Iran were able to use the American financial system for their benefit, despite being under strict U.S. sanctions that make financial dealings with them illegal.

This is beyond outrageous.

What HSBC, JPMorgan, Standard Chartered, Deutsche Bank, and Bank of New York Mellon have been caught doing once again is despicable.

The fact that they cannot get their act together after several fines makes it even worse. To make matters worse, most of these SARs were filed by the banks themselves! They knew that what they were doing was probably wrong, but clearly, they had no incentive to act.

This is unacceptable.

And unfortunately, it’s just the tip of the iceberg. The 2,100 SARs that are part of this leak don’t even add up to 0.02% of the 2 million SARs filed between 2011-2017.

That means these five banks most likely did much more than even these leaks reveal.

Not to mention other banks that were lucky enough not to be included in this leak.

This is a mess.

As individual investors, there’s little we can do about it.

But one thing we can do is make sure we get out of the way…

The Big Banks’ Crimes Don’t Have to Be Your Loss

Look, this leak has the makings of a slow burn.

Every day, journalists are finding a new case of wrongdoing in these files. That’s going to keep hitting the headlines – and the stock prices of banks.

And the banks are already hurting. Interest rates are at all-time lows, which makes it hard for banks to make any decent profit margins on loans.

Some, like Deutsche Bank, have been in trouble for what feels like forever. Between helping Myanmar, Libya, Sudan, Iran, and Syria avoid U.S. sanctions in 2015, laundering $10 billion out of Russia in 2017, and some 7,800 other legal disputes, Deutsche Bank just can’t seem to stop being on the wrong side of a law…

The bank’s stock just went under its 200-day moving average, a move that has been a very bearish signal for the stock in the past:


With no more Congressional stimulus in sight before the election, growing numbers of rent delinquencies, and rising Covid-19 rates, the rest of the year is shaping up to be very rough for banks.

Avoid them. And if you hold any big bank stocks, sell them.

Definitely don’t buy the dip – it is not yet time to bottom fish for “value stocks” (though that time will come…).

You may consider playing further downside in DB. Volatility is quite high for the bank now so if you’d like to make a put play you could a debit spread where you buy a put option that’s just out of the money (or has a strike price below the current price) and offset that cost by selling a put option of the same expiration date that is at a lower strike price. As I’m writing this you could buy-to-open the October 30, 2020 $8.00 strike Puts for $0.45 and sell-to-open the October 30, 2020 $7.50 strike Puts for $0.27 for a net cost (or debit) of $0.18. Sell these at 100% profit as DB drops, but risk no more than 50% of the original cost.

Great trading, stay safe out there, and God bless you,


D. R.

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