Bank Stock Roundup: Legal & Global Issues Continue, JPMorgan Dominates Headlines

Over the last four trading days, global turmoil due to the Greece debt crisis and a continuous fall in Chinese markets impacted the performance of domestic stocks, and banks were not immune from the same. Despite banks’ efforts to expand operations and resolve legal issues, investor sentiments were adversely impacted by several problems on the global front.

Moreover, stark details about how big banks including Bank of America Corporation BAC, Citigroup Inc. C and JPMorgan Chase & Co. JPM, along with the U.S. units of certain major foreign banks will manage potential bankruptcies, were revealed. The public disclosure of information related to ‘Living Wills’ made it evident that banks, in their attempt to rectify the flaws highlighted by the regulators last August, have incorporated several new details.

Notably, the regulators will be reviewing ‘Living Wills’ of banks in the coming months and the result will likely be out by year-end. Only time will tell whether banks have been able to satisfy the regulators, with adequately modified ‘Living Wills’.

(Read the last Bank Stock Roundup for Jul 3, 2015)

Recap of the Week’s Most Important Developments:

1. JPMorgan, along with Texas-based private wealth manager Lone Star Funds, purchased a European portfolio with a face value of €2.2 billion from the German lender Commerzbank AG. The commercial real estate (“CRE”) portfolio comprised non-performing loans as well as other loans in Central and Eastern Europe, Turkey and Nordic countries.

On a separate note, as per a Wall Street Journal report, JPMorgan is planning to shift more than 2,100 jobs out of New York to New Jersey. We believe the latest move is in sync with JPMorgan’s aim to cut expenses and improve efficiency.

In yet another development, JPMorgan was penalized by the Consumer Financial Protection Bureau (“CFPB”) along with Attorneys General of 47 states and the District of Columbia over violations related to sale and collection of credit card debt. The bank will have to shell out $136 million in fines to resolve the multi-year probe.

Also, around $50 million in consumer refunds and $30 million in penalties to the Office of the Comptroller of the Currency (“OCC”) will be paid by JPMorgan in a related action (read more:JPMorgan Acquires EUR 2.2B European Loans: A Good Bargain?; Why is JPMorgan Keen to Relocate Jobs to New Jersey?and JPMorgan Settles Credit Card Debt Probe; to Pay $136M Fine).

2. Continuing with its plan of digital transformation which started in late 2010, Capital One Financial Corp. COF acquired Oakland-based Monsoon, a digital design company. Notably, the terms of the deal were not disclosed (read more: Capital One Digitalizing Business to Serve New Age Clients).

3. After receiving regulatory approvals from the Federal Reserve, the FDIC and other required state regulators, BB&T Corp. BBT is expected to complete the acquisition of Susquehanna Bancshares, Inc., effective Aug 1, 2015; while systems conversion is expected to take place during the fourth quarter of 2015. Notably, the cash-and-stock deal (valued at $2.5 billion) was announced by BB&T in Nov 2014 with an aim to expand its footprint in the Mid-Atlantic region (read more: Fed Gives Approval to BB&T's Susquehanna Acquisition).

4. Units of Wells Fargo & Company WFC, Raymond James Financial Inc. and LPL Financial Holdings Inc. were fined by the Financial Industry Regulatory Authority (“FINRA”) due to their failure in waiving mutual fund sales charges for certain charitable and retirement accounts. The three major brokerage houses were ordered to pay more than $30 million including interest to the affected customers. Specifically, Wells Fargo will be paying around $15 million, Raymond James is to shell out $8.7 million, while the amount for LPL is estimated at $6.3 million (read more: Wells Fargo, Raymond James, LPL Fined by the FINRA).

5. Citigroup faced yet another setback in the legal battle over metal financing deals with Switzerland-based commodities merchant Mercuria Energy Group Ltd. The New York based banking giant has been ordered by a London court to pay around $14 million to Mercuria Energy.

Citing a court order, the Wall Street Journal stated that London High Court Judge Stephen Phillips ordered Citigroup to pay Mercuria Energy $13.6 million plus interest for damages pertaining to a deal in which the bank failed to deliver metal for which Mercuria Energy made a payment last year. Further, Citigroup has been ordered to pay 50% of Mercuria Energy’s legal fees, including an immediate payment of £323,000 ($500,000).

Price Performance

Overall, the optimism surrounding banks’ prospects led by expansion plans and resolution of legal issues was overshadowed by issues on the global front. Here is how the seven major stocks performed:

 

In the last four trading sessions, BofA and Citigroup were major losers, with their shares declining 2.7% and 2.5%, respectively. Moreover, JPMorgan fell 1.8%.

Over the last six months, JPMorgan, The PNC Financial Services Group, Inc. PNC and Capital One were the top performers, with their shares rising 12.9%, 10.6% and 10.2%, respectively. However, BofA declined 2.4%.

What's Next in the Banking Universe?

Beginning next week, investors’ focus will shift toward earnings releases. Both JPMorgan and Wells Fargo will kick start second-quarter results on Jul 14, 2015.

BofA, PNC Financial and U.S. Bancorp will follow suit on Jul 15, while KeyCorp. (KEY), BB&T and Citigroup will be announcing results on Jul 16. Therefore, the coming week will be quite a busy one for the industry.