Efforts by banks to move past the legal issues pertaining to their past business conduct continued to rule headlines during the last 5 trading days. The law-enforcement agencies have also set to work to resolve such issues and avoid lengthy litigations.
Further, in order to alleviate pressure on revenues, banks continue to expand and focus on core operations. However, these positive developments were more than offset by overall negative market sentiments, dragging the banking stocks down.
(Read out the last Bank Stock Roundup for Dec 26, 2014)
Recap of the Week’s Most Important Developments:
1. Banks continue to move past their legal headwinds. The 2011 case against divisions of seven banks, for providing misleading statements related to the presently bankrupt MF Global Holdings Ltd.’s certain debt offering as underwriters, has won court approval for settlement. The banks will pay $74 million in aggregate to settle the allegations.
Banks, whose units are part of the settlement, include Citigroup Inc. (C), Deutsche Bank AG, The Goldman Sachs Group, Inc., JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), The Royal Bank of Scotland Group plc and Sandler O'Neill and Partners. The plaintiffs include former stockholders and bondholders who had invested in MF Global common stock, convertible bonds and senior notes between May 20, 2010 and Nov 21, 2011 (read more: Banks Settle MF Global Underwriting Case for $74M).
2. JPMorgan agreed to shell out $100 million as settlement amount in response to a U.S. antitrust lawsuit filed in 2013 by investors against 12 major banks including JPMorgan, for price manipulations in the foreign exchange (“FX”) market. A letter, filed with the US district court in Manhattan, revealed the settlement between both the parties. However, the court’s approval is still pending and the settlement papers are expected to be submitted in the court this month (read more: JPMorgan to Pay $100M to Settle FX Price Rigging).
3. In a regulatory filing with the Securities and Exchange Commission (“SEC”), SunTrust Banks, Inc. (STI) stated that its fourth-quarter 2014 results will include an additional legal reserve pertaining to legacy mortgage matters. Hence, the company’s results will include a legal provision expense of $145 million, thereby lowering its earnings by 17 cents per share.(read more: SunTrust Q4 Results to Include New $145M Legal Reserve).
4. As part of its plan to continue boosting core operations, The Bank of New York Mellon Corp. (BK) completed the acquisition of Cutwater Asset Management, a wholly owned subsidiary of MBIA Inc. Based in Armonk, NY, Cutwater is a fixed income and solutions specialist with approximately $22 billion in assets under management. Notably, the terms of the deal were not disclosed by either party (read more: BNY Mellon Purchases Cutwater Asset Management from MBIA).
Price Performance
Overall, the performance of banking stocks remained bearish during the last five trading sessions. Negative market sentiments (owing to falling oil prices and Greece issue) were partly responsible for this pessimism.
Also, we believe that investors have taken cautious stance ahead of the earnings season, which gets under way mid-next week. Most of the banking stocks showed a negative price movement.
|
Company |
Last Week |
6 months |
|
JPM |
-3.4% |
9.7% |
|
BAC |
-3.4% |
11.6% |
|
WFC |
-2.1% |
3.9% |
|
C |
-4.3% |
9.6% |
|
COF |
-2.1% |
-2.2% |
|
USB |
-2.1% |
2.7% |
|
PNC |
-2.6% |
1.6% |
In the last five trading sessions, Citigroup remained the major loser, with its share price falling 4.3%. It was followed by JPMorgan and BofA, both declining 3.4%.
Over the last six months, BofA and JPMorgan were the top performers, with their shares advancing 11.6% and 9.7%, respectively. However, Capital One Financial Corp. (COF) witnessed a 2.2% price decrease over the same time frame.
What Next in the Banking Universe?
Effective next week, banks will report their fourth-quarter and full-year 2014 results. Some of the Wall Street biggies will be reporting over the next five trading days.
JPMorgan and Wells Fargo & Co. (WFC) will kick start the earnings season on Jan 14. Further, BofA, Citigroup and Bank of the Ozarks, Inc. are scheduled to report on Jan 15. Hence, we anticipate banking stocks to remain volatile in the coming weeks as investors’ sentiments will depend on the banks’ results.
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