Over the last five trading days, overall market sentiment remained pessimistic, which also adversely impacted banking stocks. Notably, banks continued with their streamlining activities with an aim to focus on core operations and improve efficiency. But these efforts were not able to mitigate the prevalent negative market sentiments.
Further, the much-delayed merger deal between M&T Bank Corp. MTB and Hudson City Bancorp, Inc. HCBK is finally expected to close on May 1. Last December, the deadline to complete the deal was extended to Apr 30, 2015 from Dec 31, 2014.
Legal issues related to past business misconducts have become a part and parcel of banking headlines. In the last five trading days too, banks resolved legal issues while new cases continued to crop up.
(Read the last Bank Stock Roundup for Mar 20, 2015)
Recap of the Week’s Most Important Developments:
1. Citigroup Inc. C received some relief regarding the long standing legal brawl related to its Argentine bond payment. Permitted by a U.S. federal court to process two interest payments on the Argentine bonds, the company is now allowed to process payment on Mar 31 and Jun 30 on the dollar-denominated bonds.
Following a U.S judge’s ruling earlier this month that prohibited the bank from processing payments on bonds, the Wall Street bank had revealed its plans to exit its custody business in Argentina (read more: Court to Allow Citigroup to Process Argentine Bond Payment).
2. Citigroup took another step toward boosting returns by streamlining global operations. The Wall Street banking giant is set to sell its Nicaraguan businesses to Panama-based Grupo Financiero Ficohsa.
Per a statement by Grupo Financiero, the company will acquire Banco Citibank de Nicaragua, S.A. and Cititarjetas de Nicaragua, S.A. The terms of the deal, which is subject to regulatory approvals, were not disclosed (read more: Citigroup to Sell Nicaraguan Business to Grupo Financiero).
Also, Citigroup is geared up to further shrink its Japanese footprint. The banking giant is conducting the final discussions regarding the sale of its Japanese credit-card unit to Sumitomo Mitsui Trust Bank Ltd, per a Bloomberg report. The deal value is likely to range between 40 billion yen and 45 billion yen.
Sumitomo Mitsui Trust Bank, a unit of Tokyo-based Sumitomo Mitsui Financial Group, Inc., intends to finalize a deal for acquiring Citi Cards Japan Inc. Citi Cards operates the Diners Club brand in Japan, one of the oldest credit card brands in the world since 1960.
First reported by Nikkei newspaper, the news hinted at an announcement by Sumitomo Mitsui Trust within this month, disclosing the details of the deal.
3. Wells Fargo & Company WFC announced another round of job cuts, this time in the mortgage servicing segment of its Milwaukee office. The San Francisco-based company is set to lay off 1,142 employees on grounds of subdued delinquencies.
Driven by the sub-prime mortgage crisis in 2008, banks across the U.S. had increased their workforce to serve rising mortgage delinquencies and foreclosures. However, with the housing market on a rebound and gradual recovery in the economy, the volume and severity of such loans have gone down. Moreover, as per sources, there has been a drop in demand for new homes in the U.S. (read more: Wells Fargo to Close Milwaukee Office, Slash 1100+ Jobs)
4. Bank of America Corporation BAC will have to face the lawsuit filed by the Cook County, IL, after the bank’s plea to dismiss it was rejected by the U.S. District Judge Elaine Bucklo in Chicago. The lawsuit accuses BofA of discriminatory lending practices toward minority borrowers.
BofA had sought to dismiss the lawsuit on the ground that Cook County filed the case very late. Also, the bank questioned the county’s legal position for claiming compensation under the U.S. Fair Housing Act. However, Bucklo rejected the company’s move (read more: BofA to Face Cook County Discrimination Lending Case).
5. BofA’s wholly owned subsidiary — Merrill Lynch, Pierce, Fenner & Smith Inc. – was fined $2.5 million for its failure to act in accordance with its own compliance rules, while giving internal presentations in 2013.
According to Merrill Lynch’s policy, the presentations by its Optimal Practice Model team should have been reviewed by an internal compliance staff prior to being shown to over 300 employees including financial advisors and executives (read more: BofA's Merrill Lynch Fined $2.5M for Compliance Violations).
Price Performance
Overall, the performance of banking stocks remained skewed toward the pessimistic side. Restructuring and resolution of legal issues were unable to cheer up investors. The banking stocks showed a downward price movement.
|
Company |
Last Week |
6 months |
|
JPM |
-3.6% |
-0.4% |
|
BAC |
-2.7% |
-8.9% |
|
WFC |
-2.7% |
6.5% |
|
C |
-3.4% |
-2.4% |
|
COF |
-3.2% |
-3.1% |
|
USB |
-3.6% |
3.8% |
|
PNC |
-3.6% |
8.9% |
In the last five trading sessions, JPMorgan, U.S. Bancorp USB and The PNC Financial Services Group, Inc. PNC were the major losers, with their shares declining 3.6% each. Citigroup fell 3.4%.
Over the last six months, PNC Financial and Wells Fargo were the top performers, with their shares advancing 8.9% and 6.5%, respectively. However, BofA declined 8.9%, Capital One Financial Corp. COF fell 3.1% and Citigroup decreased 2.4%.
What Next in the Banking Universe?
In the upcoming five days, no major upheaval is expected on the banking front. Unless there is a substantial unprecedented movement in the global market, we believe that bank stocks will continue to perform in a similar fashion.
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