Amid ongoing pressure on revenues, the trend of streamlining operations and focusing on core businesses continued over the last four trading days. Citigroup Inc. (C) led the path of restructuring activities in the industry.
Efforts by major banks to conclude litigation issues pertaining to their past business conduct was also prominent. The law-enforcement agencies are trying to resolve such issues in order to avoid lengthy litigations.
(Read last to last week’s developments here: Bank Stock Roundup for Dec 19, 2014)
Recap of the Week’s Most Important Developments:
1. In furtherance of its strategy to reduce costs through streamlining and enhancing returns to serve its clients better, Citigroup inked a deal with Canada-based The Bank of Nova Scotia (BNS) to sell its consumer and commercial banking operations in Peru. Notably, Scotiabank’s Peruvian subsidiary will acquire Citigroup’s operations.
Financial terms of the acquisition were not disclosed and the deal awaits regulatory approvals. Notably, the deal will impact Scotiabank's common equity tier 1 capital ratio by less than 10 basis points. Though Citigroup is reducing its consumer banking operations in Peru, the company still considers it as a strategic market for growth in other operations. The bank foresees its clients and employees to benefit from Scotiabank’s existing large market share in Peru and expects further growth. Notably, driven by market growth in Peru, Citigroup will hold back its institutional client businesses including Corporate and Investment Banking, Markets and Securities Services, Treasury and Trade Solutions and Private Banking in Peru. (Read more: Citigroup and Scotiabank Ink Business Deal)
2. Citigroup has taken yet another step in tune with its effort to boost commodities trading operations. The Wall Street Banking giant has purchased commodity trading books of Credit Suisse Group AG (CS). The purchase deal includes the Swiss banking giant’s base and precious metals, freight, coal, iron ore, crude oil, oil products and U.S. and European natural gas books. However, the deal excludes Credit Suisse’s U.S. power trading book. (Read more: Citigroup Buys Commodity Trading Books of Credit Suisse)
3. In continuation of its strategy to trim Global Consumer Bank (GCB) operations, Citigroup is shrinking its Japanese footprint. The Wall Street banking giant is set to vend its retail banking operations in Japan to Sumitomo Mitsui Financial Group, Inc. (SMFG). The deal is expected to close in Oct 2015.
The deal comprises transfer of the retail banking operations of Citibank Japan Ltd. including its retail branches network and ATMs across Japan to a trust bank subsidiary of Sumitomo Mitsui Banking Corporation (‘SMBC’) – SMBC Trust Bank Limited. It also includes around 740,000 customer accounts and around JPY2.5 trillion ($21.0 billion) of yen and foreign currency deposits as of Nov 30, 2014. Also, about 1,600 Citi Japan employees will be shifted. Citigroup stated that the financial terms of the transaction are immaterial to the company.
4. Legal issues continue to trouble Wells Fargo & Company (WFC). Following the recent $1.5 million fine by the Financial Industry Regulatory Authority (‘FINRA’) for failure in the anti-money laundering (AML) procedures, the bank has been slapped with a verdict to pay $54.8 million in damages in a class action pertaining to overcharged fees. The class action brought by homeowner Joseph Mazzei and a group of borrowers in 2001, accuses Wells Fargo of charging late fees unlawfully by the now-defunct mortgage companies – The Money Store and HomEq. Mazzei alleged that borrowers were charged late monthly fees even when such mortgages moved into a default status. (Read more: Wells Fargo Faces $54.8M Payout in Mortgage Fees Suit)
5. Major American banks continue to be embroiled in legal hassles related to the sale of risky residential mortgage backed securities (“RMBS”). The U.S. regulator for credit unions – National Credit Union Administration (NCUA) – has sued Wells Fargo for recovering losses on $2.4 billion worth of RMBS that turned bad. The case, filed in a federal court in New York, pertains to the sale of 27 RMBS trusts to five corporate credit unions between 2004 and 2007.
Wells Fargo has been accused by the NCUA of failing to diligently perform its duties as a trustee. Per the lawsuit, the mortgage loans that backed the securities were of poor quality as these loans incurred heavy delinquencies and credit losses, which ultimately resulted in huge losses for the investors. This could have been prevented if U.S. Bank was true to performing its duties. Also, the NCUA accused Wells Fargo of ignoring the underwriting guidelines specified in the offering documents. (Read more: Wells Fargo Sued by NCUA over Sale of Risky RMBS)
Price Performance
Overall, the performance of banking stocks remained skewed toward the optimistic side with effective restructuring activities and resolution of legacy issues. Most of the banking stocks showed a positive price movement.
|
Company |
Last Week |
Last 6 months |
|
JPM |
0.9% |
10.3% |
|
BAC |
2.0% |
16.8% |
|
WFC |
1.6% |
6.9% |
|
C |
1.0% |
14.1% |
|
COF |
1.0% |
1.7% |
|
USB |
1.2% |
6.9% |
|
PNC |
0.9% |
5.7% |
In the last four trading sessions, Wells Fargo and U.S. Bancorp (USB) were the major gainers, with their share prices increasing 1.6% and 1.2%, respectively.
Over the last six months, Bank of America Corporation (BAC) and Citigroup were the top performers, with their shares advancing 16.8% and 14.1%, respectively. Moreover, JPMorgan Chase & Co. (JPM) witnessed a 10.3% price increase over the same time frame.
What Next in the Banking Universe?
Since no major development is expected next week, the performance of banking stocks should not change significantly.
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