Efforts of major banks to clear up the litigation issues pertaining to their past business conduct remained the key trend over the last five trading days. Litigations and probes dominated the headlines, with Bank of America Corporation (BAC) leading the way. BofA’s talks with the Department of Justice (:DOJ) to settle mortgage issues appear to be in an advanced stage.
Further, Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) are making efforts to relieve their legal burdens. Further, these mega banks are in the process of expanding in Argentina by hiring technology workers.
However, the optimism of banking investors was somewhat offset by the news of the living wills of major banks submitted in 2013 being deemed inadequate by the financial regulators. These banks now have a deadline of Jul 1, 2015 for rectifying the flaws and submitting the living wills.
(Read last to last week’s developments: Bank Stock Roundup for Aug 4, 2014)
Recap of the Week’s Most Important Developments:
1. Much to the delight of investors, BofA increased its quarterly common stock dividend from 1 cent per share to 5 cents. This 400% hike marks the first increase by the company since the financial crisis.
In addition to this, according to sources, BofA is nearing the landmark settlement deal of $16–$17 billion with the DOJ to clear charges associated with the sale of faulty mortgage-backed securities prior to the financial crisis. Though this deal entails huge costs, but if finalized, it would obliterate the litigation muddle that had been surrounding the bank for quite some time. (Read More: BofA Hikes Dividend 400%, Nears Record MBS Settlement)
2. The U.S. District Judge Jed Rakoff approved Citigroup’s $285-million worth settlement with the Securities and Exchange Commission (:SEC). The decision comes two months after the 2nd U.S. Circuit Court of Appeals in Manhattan rescinded Jed Rakoff’s decision to reject the settlement in June. The settlement is a compensation for investors who were misled by Citigroup with a housing market related collateralized debt obligation. (Read More: Citigroup-SEC $285M Settlement Gets U.S. Judge Approval).
3. Capital One Financial Corporation (COF) has received subpoenas from the New York District Attorney’s Office as part of a money-laundering investigation. The probe pertains to its commercial banking business of certain check-casher customers.
According to the bank sources, Capital One is gradually withdrawing from its business of providing services to check-cashers clients and similar types of companies. This is because it no longer fits into the scheme of things for the bank. (Read More: Capital One Embroiled in Check-Casher Money-Laundering Case).
4. U.S. District Judge Otis Wright II accepted the bid filed by JPMorgan regarding the dismissal of a lawsuit filed by the city of Los Angeles. The lawsuit accused the banking behemoth of discriminatory lending practices toward minority borrowers. (Read More: JPMorgan (JPM) Sees LA Lawsuit Dismissed).
Further, JPMorgan is presently undergoing a probe for potential conflict of interest in its private banking division, per a report by the Wall Street Journal. The SEC is investigating if JPMorgan’s sale of its in-house investment products to the private-banking clients has been inappropriately administered.
5. Even the bond default by Argentina barely two weeks ago did not deter the top-notch global banks such as Citigroup and JPMorgan to consider extending their technology footprint in Buenos Aires. The availability of skilled professionals at comparatively low costs compared to other big Latin American nations like Brazil and Chile, are pushing the global giants toward this fiscally-ravaged country.
Citigroup’s technology unit in the country, known as the Argentina Development Center, is planning to raise its workforce by 20% by early 2015 from its current level of 430. Further, JPMorgan is adding to the workforce in its Argentine technology hub. All these expansion initiatives are being driven by significant growth opportunities in the country.
Price Performance
Despite an overall optimism prompted by litigation settlements and several steps to drive growth and boost investors’ confidence, banking stocks continued to depict a downtrend. The performance of banking stocks remained subdued owing to the existing concerns. The stocks ended last week on a pessimistic note.
|
Company |
Last Week |
6 months |
|
JPM |
-0.5% |
0.8% |
|
BAC |
1.0% |
-9.5% |
|
WFC |
-1.3% |
11.8% |
|
C |
0.2% |
-1.8% |
|
COF |
-1.3% |
11.3% |
|
USB |
-1.1% |
4.1% |
|
PNC |
-0.4% |
3.5% |
In the last five trading sessions, BofA was the major gainer, with its share price improving 1.0%. This was mostly attributable to the good news coming from the company. Notably, among the major losers were Wells Fargo & Company (WFC) and Capital One, both declining 1.3%.
Over the last six months, however, Wells Fargo and Capital One were the top performers, with their shares gaining 11.8% and 11.3%, respectively. BofA witnessed a 9.5% price decline over the same time frame.
What's Next in the Banking Universe?
Since no major development is in the cards next week, the banking stocks are not expected to show any significant improvement.
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