Banking stocks remained under pressure over the last four trading days. Among the major events, litigations and probes dominated the headlines with Citigroup Inc. C and JPMorgan Chase & Co. JPM leading the field. The law-enforcement agencies are trying to resolve the issues in order to avoid lengthy litigations.
Amid the challenging operating environment, banks are taking measures to remain profitable. Recently, under the largest CMBS deal in 2016, acquisition of BioMed Realty Trust Inc. by The Blackstone Group L.P. BX, Citigroup and The Goldman Sachs Group Inc. GS cleared off their backlog by selling bonds supported by commercial mortgage-backed securities.
Nevertheless, banks will continue to be adversely impacted by a low-rate environment which is not expected to change any time soon.
(Read: Bank Stock Roundup for the week ending Mar 18, 2016)
Recap of the Week’s Major Developments:
1. Legal troubles seem to be never ending for banks. The Bank of New York Mellon Corporation BK agreed to settle a Massachusetts regulatory probe over the technical glitch last year, which threw around 66 institutional clients into disarray, in effect, impacting hundreds of funds and billions of dollars of assets. The company will shell out $3 million to resolve the matter (read more: BNY Mellon Settles Probe over Technical Glitch for $3M).
2. Recently, Citigroup’s German unit has been under the investigation conducted by the German tax authorities related to dividend stripping. German daily Handelsblatt cited that the Frankfurt-based tax authorities have demanded €706 million ($791.07 million) in back taxes from New York-based major bank. The equity trading strategy which is also known as "cum-ex" entails buying the stock just prior to its dividend right expiration and earns tax benefits for both buyer and seller.
Citigroup is under the purview of broad investigation conducted by German authorities over dividend stripping involving banks, hedge funds, private equity firms and private institutional players and brokers. Currently, the regulators estimated €12 billion as damages due to dividend stripping.
Further, in another release, Fifth Third Bancorp FITB settled a class-action lawsuit in federal court in Cincinnati for $6 million. The bank was sued by employees for the company’s retirement plan under which they suffered losses due to the inclusion of Fifth Third stock as an investment option. Additionally, the bank has also restricted its stock fund and barred new members of the company’s profit-sharing plan to invest in Fifth Third’s stock. "We are pleased to have brought this matter to a close,” Fifth Third spokesman Larry Magnesen said.
3. JPMorgan was penalized by the Commodity Futures Trading Commission (“CFTC”) for failing to submit accurate large trader reports (“LTRs”) for physical commodity swap positions. The bank will have to pay $225,000 in civil fine to settle the charges against JPMorgan Ventures Energy Corp. and JPMorgan Chase Bank, N.A.
According to the CFTC’s statement, large trader reporting for physical commodity swaps is essential to its ability to conduct effective surveillance of markets in the U.S. physical commodity futures and economically equivalent swaps. However, it was found that JPMorgan routinely filed reports that contained errors from Mar 2013 through Apr 2014.
While JPMorgan consented to the order without admitting or denying the regulator’s findings, the CFTC acknowledged that the company made modifications to data processing and reporting systems as necessary to comply with LTR reporting requirements, corrected errors when identified and submitted corrected historical LTRs.
4. Under the acquisition deal of BioMed Realty Trust Inc. by The Blackstone Group L.P. (BX), Citigroup and Goldman cleared off their backlog by selling bonds backed by commercial mortgage-backed securities (CMBS) worth $1.8 billion. Investors were at fuss since $14 billion of real estate buyouts were funded by Wall Street banks in 2015 which created a backlog of unsold mortgage debt on the banks’ balance sheets. Therefore, the largest CMBS deal in 2016, the BioMed transaction has helped the banks to ease out some pressure.
5. In a filing with the Securities and Exchange Commission (“SEC”), Bank of America Corporation BAC announced additional share repurchase authorization of $800 million through Jun 2016. BofA had informed the Federal Reserve of its intention to authorize additional buybacks, and the regulator consented. This comes in addition to the $4 billion repurchase authorized last year, following the conditional approval for the same from the Fed after clearance of stress test (read more: BofA Follows JPMorgan & Capital One, Lifts Share Buyback).
Price Performance
Overall, the performance of banking stocks was bearish. Here is how the seven major stocks performed:
|
Company |
Last Week |
6 months |
|
JPM |
-0.9% |
0.2% |
|
BAC |
-1.2% |
-12.8% |
|
WFC |
-1.5% |
-0.6% |
|
C |
-2.7% |
-15.3% |
|
COF |
-0.5% |
-3.4% |
|
USB |
-0.3% |
1.5% |
|
PNC |
-0.9% |
-1.8% |
In the last four trading sessions, Citigroup and Wells Fargo & Company WFC were the major losers, with their shares decreasing 2.7% and 1.5%, respectively. Moreover, BofA declined 1.2%.
Over the last six months, Citigroup was the weakest performer, with its shares declining 15.3%. Also, BofA and Capital One Financial Corporation COF shares fell 12.8% and 3.4%, respectively.
What's Next in the Banking Universe?
Over the next five trading days, performance of banking stocks will likely continue in a similar manner unless anything surprising happens.
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