Bank of America will report its second quarter results on July 16, 2014, and we are expecting continued growth in the business segments. However, the litigation charges might cause the profitability of the bank to suffer. Nonetheless, the long-term picture will again be positive due to the favorable economic environment and solid growth in business for BAC. The bottom line is that Bank of America remains a solid long-term investment. The economic environment is favorable for banks and the growth in business segments will remain strong for the company. The biggest negative for the bank has already been priced in and the downside of BAC is limited. On the other hand, the stock continues to trade at a discount relative to its peers and the upside potential is substantial. BAC shareholders should ignore short-term price fluctuations and focus on the long-term growth potential of the bank as patience is key for investing in Bank of America.
Central bank provides key elements of exit plan, minutes show
According to the new plan, the Fed will make a $15 billion final reduction at its October meeting, after trimming it by $10 billion at each meeting up to that point. Fed officials said that members of the public had asked them if the Fed would end the program in October or with a final $5 billion reduction in December. Most Fed officials said that the exact end of the tapering issue will have no bearing on the timing of the first rate hike. The Fed has said that rates would remain near zero for a “considerable time” after the Fed halts its program of bond purchases.
An end of the asset purchases will “set the clock on eventual tightening -- which we think could start as soon as March 2015,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.
In the case of the Federal Reserve's unprecedented stimulus program that has been a big driver of the five-year stock rally, the end is finally near. In minutes released from its June meeting, the central bank said that if the economy improves as it expects, its massive bond buying program will fully wind down following its meeting in October. After the impressive June jobs report in which the government said that 288,000 jobs were added in June and the unemployment rate fell to 6.1%, there's a strong possibility of that happening.
The Fed's intention to pull back, or "taper," its stimulus is a sign that it believes the economy is on the right track. That's the good news. The bond purchases are only one measure helping to boost the economy, but the curtailment is being watched closely as a sign of when the Fed could raise interest rates. The Fed intends to be very clear and give plenty of signals about rate hikes, according to the minutes.
But the economy continues to show signs of recovery and expectations that the Federal Reserve will finally begin tightening its monetary policy are strengthening. Since banks make money from lending at a higher interest rate than the rate at which they borrow, an increase in the federal funds rate is generally favorable for banks like Bank of America. As a result, analysts have become increasingly optimistic that Bank of America is well positioned to outperform in the coming year.
Both Morgan Stanley (NYSE:MS) and Deutsche Bank (NYSE:DB) have upgraded Bank of America stock to Buy from Hold. Deutsche Bank raised the target price to $18 per share from $16.50.
One of the main reasons analysts are hopeful about Bank of America is that unlike other major trading banks, it has limited exposure to fixed income, commodity, and currency trading. According to a note published by Morgan Stanley’s Betsy Graseck and Manan Gosalia and quoted by Barron’s, “(We) expect fixed income, currencies and commodities declines 20% year on year on lower volatility and lower FICC trading volumes. We estimate year on year declines across the board, most at JPMorgan Chase (25% year on year) and least at Bank of America (-11% year on year).”
Investment banking is enjoying relative strength according to 2Q data compiled by Thompson Reuters. On a year-over-year basis equity underwriting was up 42% to $282 billion and US IPOs were up 30% to $17.1 billion. Completed M&A was down 17% to $482 billion, although announced M&A was up 92% to $1.02 trillion, suggesting potential M&A revenue improvement in future quarters. Debt underwriting was up nearly 12% to $1.6 trillion. Goldman Sachs held the top spot in the Thompson league tables in M&A completed and announced, as well as in IPOs and equity underwriting. JP Morgan held the top spot in debt underwriting.
Citi’s Issuer Services business, acting through Citibank, N.A., has been appointed by Australia and New Zealand Banking Group Limited (ANZ) as the successor depositary bank for its sponsored Level 1 American Depositary Receipt (ADR) program. ANZ’s ADRs are traded in the United States over-the-counter market under the symbol “ANZBY,” with each ADR representing one ordinary share. ANZ’s ordinary shares are listed on the Australian Stock Exchange. “We are delighted to be appointed depositary bank for ANZ’s ADR program,” said Dirk Jones, Head of Global Issuer Services at Citi. “With Citi’s investor relations expertise and unparalleled global presence, we are confident that our powerful platform will enable the success of ANZ’s ADR program.” Citi is a leading provider of Depositary Receipt Services. With Depositary Receipt programs in 55 markets, Citi leverages its global network to help companies connect to new markets and raise capital worldwide.
Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.
Bank of America + Apple? This device makes it possible.
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo,
LONDON – The Spire Healthcare Group, a British operator of hospitals, said on Monday that it expected its initial public offering in London to value the company at about $1.6 billion. Spire said it expected to price its I.P.O. at 2.10 pounds to 3 pounds a share. At the midpoint of that range, the company would be valued at about £955 million, or about $1.6 billion. The company expects to raise about £315 million in proceeds from the offering, which it will use to reduce debt. The I.P.O. will equal about 45 percent of it share capital. “We believe the dynamics of the U.K. health care market are strong and will strengthen further given the growing U.K. population and increasing life expectancy,” Rob Roger, Spire Healthcare’s chief executive, said in a statement. The offering is expected to include shares held by the private equity firm Cinven. The pricing is expected to be announced on July 18.
Spire operates 39 private hospitals and 13 clinics in Britain and employs about 7,600 people. The company treats about 930,000 patients annually.
Bank of America Merrill Lynch, JPMorgan Chase, Morgan Stanley and Numis are acting as underwriters on the Spire offering.
Investors know Bank of America, Wells Fargo, and Capital One are similar in many ways, but it turns out Bank of America tops its big competitors in an area you may not expect.
The continued growth
SNL Financial recently reported that auto loans held by banks rose by $33.4 billion over the past year to stand at nearly $360 billion. The number of delinquent loans has also steadily edged downward: Just 0.62% of the auto loans Bank of America of America held were past due, whereas Wells Fargo has nearly triple that figure, and Capital One stands more than nine times higher, with 5.6% of its loans in question. And while 5.6% doesn't sound like a lot, a glimpse at the loans past due reveals how dramatic the difference is:
Bank Amount Past Due
Wells Fargo $910
Capital One $1,862
Bank of America $183
Dollar figures in millions. Source: SNL Financial and author calculations.
The results at Bank of America are even more impressive on a total basis, relative to competitors Wells Fargo and Capital One.
Banks including Goldman Sachs and JPMorgan Chase are creating a new trading platform for US corporate bonds as they seek to maintain their hold on the business of trading US companies’ debt while boosting liquidity in the $10tn market. The platform is due to launch next month after at least 10 banks signed up for the new trading technology in partnership with Tradeweb, a trading hub owned by Thomson Reuters and a group of banks. Banks have agreed to create the venue, which includes new functions for exchanging large amounts of corporate bonds, at a time when their revenues from trading fixed-income products have fallen sharply thanks to a combination of low volatility, new regulation and competition from non-bank trading platforms such as Bloomberg and Market Axess. Big investors in corporate bonds have complained that the retreat of so-called dealer-banks from trading debt has led to a dearth of liquidity in the market – meaning they are unable to transact in the bonds without greatly impacting the price of the securities. Creating a new multi-dealer trading venue could in theory make it easier for investors to trade bonds, but some market participants have been skeptical that the proposed platform will reform the market or help banks preserve the current business model where investors must approach them individually to execute trades.
“We are making a huge push into the US investment grade corporate bond market,” Lee Olesky, chief executive at Tradeweb, told the Financial Times. “We have listened to asset managers and have gathered the support of major liquidity providers.”Tradeweb already hosts venues for trading of government bonds, mortgage securities and derivatives between large investors and dealers.
Mary Jo White, chairman of the Securities and Exchange Commission, has called for new trading technology to be used to increase transparency in the bond markets and make more debt price quotes electronical.
Citigroup will pay $700 million for its new Hong Kong headquarters, in one of the largest purchases of a single-block office building in the Asian financial hub, the bank said on Tuesday. The 21-story building will become the base for all of Citigroup’s businesses in Hong Kong, where it employs almost 5,000 people, making the American lender the biggest employer among foreign banks in the city.
Citigroup will become the fourth major global bank to move its headquarters out of the city’s increasingly expensive Central district, the main business area on the island of Hong Kong, to the Kowloon district across the harbor. Credit Suisse, Deutsche Bank and Morgan Stanley have all moved from Central to the 118-floor International Commerce Center in Kowloon in the last four years. Citigroup is taking one of two towers being built by a unit of the developer Wheelock & Company. Citigroup said that construction would be completed in the third quarter of 2015, and that it would move into its new headquarters in the second half of 2016.
“Our decision to purchase the East Tower of One Bay East underlines our belief and confidence in Hong Kong’s continued growth as a leading global financial center,” Stephen Bird, Citigroup’s chief executive for the Asia-Pacific region, said in a statement on Tuesday.
Large bank stocks have an overhang of uncertainty and fear due to a seemingly endless stream of multi-billion dollar settlements and litigation. Private corporation lawsuits against banks that began in mid-2011 or later have been dismissed due to a little-known rule called the statute of repose.
A recent, relatively unknown supreme court decision may indicate that current and future government lawsuits should also be dismissed according to the statute of repose. The supreme court may abruptly end financial crisis-era settlements and litigation, dramatically changing the investment narrative and profitability of the large banks.
For the past several years, large banks including Bank of America (BAC), Citigroup (C) and JP Morgan (JPM) have been threatened with never-ending government lawsuits for tens of billions of dollars. In the past few weeks, the Department of Justice (DOJ) has reportedly asked for another $17 billion from BAC, and another $10 billion from C. These follow last year's $13 billion settlement with JPM. The seemingly endless wave of threatened and actual litigation has introduced a great deal of uncertainty and fear into large bank stocks, and is likely depressing their stock prices.
This article is primarily about the statute of repose, a little known rule which, like the better-known statute of limitations, places limits on when plaintiffs can litigate against a defendant. Allison Frankel has written a good summary of the legal issues on her excellent blog, and my purpose here is mainly to supplement her legal discussion with some investment perspectives.
For most financial litigation, the Securities Act of 1933 sets the statute of repose at three years after the wrongdoing. Since most financial crisis misbehavior happened prior to mid-2008, the statute of repose sets a mid-2011 deadline for filing litigation. That deadline, per the Supreme Court, can not be extended.(Shih Inv.)
playforever8 • 1 hour 6 minutes ago Flag
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Support C to go to the court against DOJ
DOJ does not make sense at all. It asked C to pay $10B. C only sold 1/5 of what JPM sold for the mortgage based security. The fine for JPM is only $13B. BAC sold near 10x of what C sold for the mortgage based security. DOJ only asked for $17B. Based on the simple calculation the maximum should not be more than $4.
I support C to go to the court against DOJ. DOJ definitely is not fair.
Citigroup is apparently not going to pay $10 billion to the U.S Department of Justice to settle outstanding investigations into the bank’s role in selling mortgage securities before the financial crisis.The DOJ ended negotiations with Citigroup after the bank refused to offer more than $4 billion. Prosecutors have been playing hardball with banks for the past few years in an attempt to fix accountability for the late-2000s financial crisis. Regulators have been urged by everyone from the public to policymakers to Obama to take an aggressive stance against financial institutions accused of misconduct, and the massive fines are designed to ensure that banks receive more than just a slap on the wrist. Bank of America issued mortgage securities worth $637 billion from 2005 to 2008. The bank is willing to pay 2.04 percent of this chunk in fines, but the DOJ wants it to pay almost half a percentage point more. Last year, JPMorgan Chase settled with the DOJ for $13 billion, about 2.82 percent of the size of the securities it issued ($460.4 billion) between 2005 and 2008. The matter has been much worse for Citigroup, which sold securities worth $91 billion between 2005 and 2008. Prosecutors have asked the bank to cough up to 11 percent of the mortgage securities it sold. Citigroup is unwilling to pay more than 4.4 percent.
June 15, 2014
After media reports indicated that the Department of Justice was seeking a payment of $10B+ from Citigroup to settle mortgage improprieties, Wells Fargo believes that the agency's request is inconsistent with settlements that have already been made with other large banks. The firm still believes that Citigroup can reach a settlement with the agency, and it thinks that a settlement could come in at $8B and lower the bank's EPS by 95c. It keeps an Outperform rating on the shares.
One thing is certain – Bank of America is ready to put the mortgage crisis firmly in the past. For this reason alone, a lawsuit is simply not a good option for them. It could take years, which Bank of America definitely doesn't want. The option is still on the table for Bank of America to raise its offer to avoid a suit, and that's what is most likely to happen here, it's just a question of when and for how much. Bear in mind that Bank of America and all of the other banks in similar situations have been setting aside money for settlements like this. Whatever this settlement ends up being, it's not all coming out of the bank's quarterly earnings and producing massive losses. Some of the cost has been planned for in the form of legal reserves. Additionally, the earliest figure being tossed around was a $20 billion settlement, which would have included the $6.3 billion cash portion of the deal the bank subsequently made with the FHFA. So, the remaining part of the settlement was originally estimated to be about $13.7 billion, give or take, so it's pretty safe to assume the bank has planned ahead for at least that amount. The recently reported $12 billion figure was on the low side, so there is definitely some wiggle room for negotiating. One thing we can say about the banks is they aren't getting caught off-guard by these settlements. And, Bank of America has more experience than most of its peers in this sort of thing, having already paid or agreed to pay about $60 billion in legal settlements in recent years. Patience is a virtue
CEO Brian Moynihan said the Justice Department settlement will be the last big one the bank will face as a result of the mortgage crisis, so the "settlement era" will be over sooner rather than later.
In the latest chapter of Bank of America's seemingly endless legal drama, it looks like the reports of an imminent $12 billion settlement with the Justice Department arrived too soon. According to the latest news, the deal has stalled after the Justice Department surprisingly rejected Bank of America's latest settlement offer of more than $12 billion.
What comes next?
This is a tough question to answer. The Justice Department is reportedly seeking a settlement of around $17 billion, accusing the bank of selling subpar mortgages which caused investors to lose billions of dollars. So, it is safe to say the two parties are still pretty far apart.
Many of the mortgage securities in question were sold by Merrill Lynch before Bank of America acquired the struggling firm. Normally, any of an acquired company's liabilities would pass to its acquirer. However, Bank of America has made it clear that it felt pressured by the Federal Reserve and Treasury to complete the acquisition, and as such feels the penalties are unreasonably harsh.
Still, even though the Justice Department is preparing a civil complaint against Bank of America, an actual lawsuit is still not certain, or even probable.
A federal judge said he would consider dismissing the civil fraud charges that the Department of Justice alleged against Bank of America in relation to sales of mortgage securities during the financial crisis, says Reuters.
The increased activity is a sign that President Barack Obama is trying to follow through on his 2012 pledge to hold more banks accountable for their role in the housing crisis, after prosecutors faced criticism for little high-profile action. Attorney General Eric Holder has also expressed a desire to wrap up more of mortgage securities-related cases this year. "There is a widespread recognition that the banks have not yet been held fully accountable. The Justice Department's portion of the JPMorgan settlement went to the U.S. Treasury, but the department can keep up to three percent of money it collects for other federal agencies to use for certain purposes. The DOJ settlement with JPMorgan also resolved lawsuits from other agencies, including the Federal Deposit Insurance Corporation. In addition to Bank of America and Citigroup, the government has been investigating other banks, including Royal Bank of Scotland, Credit Suisse AG, and Goldman Sachs Group Inc, people familiar with the investigations said.
Bank of America has discussed paying about $12 billion, with more than $5 billion of that going to help struggling borrowers, to resolve a range of federal and state probes, according to people familiar with the talks. That would be on top of the $6.3 billion the bank has already paid to resolve claims from the FHFA.
The Justice Department suggested a $17 billion settlement in the latest round of negotiations. Reuters could not determine the range of penalties Citigroup is potentially facing, but one analyst estimated the bank could face a settlement of about $5 billion, including about $2 billion in consumer relief.