Bank Stock Roundup: Restructuring, FX Rigging Settlement in Pipeline; JPMorgan & Citi in Focus - Analyst Blog
Over the last five trading sessions, efforts by banks to restructure and expand their operations dominated headlines. Though rate hike is expected in the next 6 to 9 months (if market rumors are to be believed), banks are trying to augment revenue base by venturing into new areas.
Further, banks’ legal issues, as usual, continued to make headlines. Notably, instead of new lawsuits cropping up this time, banks received relief from litigation problems.
However, a major regulatory probe stands on verge of settlement. The U.S. Department of Justice (“DOJ”) is seeking to reach a settlement in the foreign currency (“FX”) rigging probe with five major global banks. The settlement would involve a guilty plea from all 5 banks – Citigroup Inc. C, JPMorgan Chase & Co. JPM, Barclays Plc, Royal Bank of Scotland Group Plc and UBS Group AG.
Further, the banks demand assertion from the Securities and Exchanges Commission (“SEC”) and other federal regulators that following the plea, they should not be barred from conducting certain businesses as criminal pleas generally lead to such consequences. Nevertheless, the penalty amount and other terms of the settlement are still under discussion, with no timeline set for the announcement.
(Read the last Bank Stock Roundup for May 8, 2015)
Recap of the Week’s Most Important Developments:
1. Citigroup, currently surrounded by numerous litigations, recently received some reprieve. In its latest quarterly filing, the New York-based banking giant stated that the DOJ has declined to prosecute the bank regarding the regulator’s probe in London Interbank Offered Rate (LIBOR) rigging (read more: LIBOR Rigging: Citigroup Spared from DOJ Prosecution).
2. Bank of America Corp. BAC perhaps has a reason to celebrate now. The financial bigwig have been able to escape from the clutches of a litigation filed by Los Angeles as a federal judge dismissed the case over the bank’s alleged discriminatory lending practices. The news was reported by Bloomberg.
According to U.S. District Judge Percy Anderson, “The city has no evidence that it has suffered any damages as a result of defendants’ allegedly discriminatory loans.” The latest revelation brings relief to the North Carolina-based bank as it ended a long standing legal suit, which was filed in Dec 2013.
It was alleged that BofA was involved in mortgage discrimination as the company granted predatory home loans to African-American and Hispanics that were beyond their affordability. The lawsuit claimed that these borrowers were forced into foreclosures after the housing bubble burst and were also denied refinancing.
However, the federal judge dismissed the case citing that Los Angeles had no grounds to prove that that it was hurt by the bank’s alleged lending practices.
3. Per a report from the Charlotte Observer, Wells Fargo & Co. WFC has started a company-wide initiative to review certain departments with an intention to streamline operations. The company had disclosed the plan internally late last month.
Wells Fargo is reviewing the departments of technology support, finance, human resources, communications and marketing. Though nothing has been finalized yet, such reviews generally lead to job cuts. Notably, the number of employees working in these departments is still not known (read more: Wells Fargo to Streamline Business: Job Cuts on Card?).
4. JPMorgan has signed a definitive agreement to buy mortgage servicing rights (“MSRs”) for 266,000 high-quality Fannie Mae loans worth nearly $45 billion from Ocwen Financial Corporation. Earlier in March, Ocwen had announced its intention to sell this portfolio of loans.
The purchase of MSRs is in sync with JPMorgan’s strategy to improve quality and efficiency of mortgage business. The company will “officially begin welcoming new customers— half of which already have another Bank product— later this month and will begin onboarding the loan portfolio on June 1, 2015.”
Further, Chase Mortgage Banking CEO Kevin Watters said, “We expect the portfolio, in addition to lower delinquency rates overall, will help improve the value of our business.”
5. In accordance with the approval of its 2015 capital plan, KeyCorp KEY announced a 15.4% dividend hike. The dividend of 7.5 cents will be paid on Jun 15 to shareholders of record as on Jun 2.
In March, the Federal Reserve had consented to KeyCorp’s 2015 capital plan that also included a share repurchase program of up to $725 million. Further, an additional increase in the quarterly common share dividend, up to $0.085 per share, is expected to be considered by KeyCorp in 2016, for the fifth quarter of the 2015 capital plan.
Price Performance
Performance of banking stocks remained optimistic over the last five trading days. Plans to expand and restructure businesses are expected to improve efficiency over the long term, and these cheered the investors up. A stabilizing economy added to the optimism. Nevertheless, concerns about muted top-line growth kept investors wary for the near term.
Company
Last Week
6 months
JPM
0.9%
11.0%
BAC
0.4%
-3.1%
WFC
0.0%
6.5%
C
1.1%
2.4%
COF
1.6%
4.2%
USB
1.2%
2.6%
PNC
1.4%
9.8%
In the last five trading sessions, Capital One Financial Corp. COF and The PNC Financial Services Group, Inc. PNC were the top gainers, with their shares increasing 1.6% and 1.4%, respectively.
Over the last six months, JPMorgan and PNC Financial were the top performers, with their shares advancing 11.0% and 9.8%, respectively. On the other hand, BofA declined 3.1%.
What's Next in the Banking Universe?
In the coming five days, no major unprecedented incident is expected on the banking front. The FX rigging settlement is expected to be announced soon, though the exact timing is not known.
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JPMORGAN CHASE (JPM): Free Stock Analysis Report
PNC FINL SVC CP (PNC): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis Report
KEYCORP NEW (KEY): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
BANK OF AMER CP (BAC): Free Stock Analysis Report
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