After a slow start, bank stocks gained momentum towards the
middle of the week to regain most of the value they lost over the
last two weeks. With no major events affecting the stock market
over the first two days of the week, prices remained largely
unchanged over that period, before a series of better-than-expected
economic indicators for the U.S. and a positive outlook for the
euro by the ECB President Mario Draghi helped boost investor
sentiments. The U.S. factory orders data for the month of August
showed that orders had declined by a less-than-expected 5.2%.
Initial job reports also added to investors' optimism. Draghi's
emphasis that "the euro is irreversible" also helped cement hopes
of a recovery in Europe.
As far as individual banks are concerned, JPMorgan Chase (
) made the headlines for being sued by New York Attorney General
Eric Schneiderman in what is the first action by the
Residential Mortgage-Backed Securities Working Group formed by
President Obama this January. While the largest U.S. bank
jostles with another multi-billion dollar lawsuit, its closest
competitor Bank of America (
) announced that it is settling the class action lawsuit related to
Merrill Lynch against it by shareholders for whopping $2.43
billion. On the other side of the Atlantic, Barclays' (
) newly appointed top-management team is reportedly working on a
new structure for its investment banking operations.
Bank of America
Bank of America finally called to close the class-action lawsuit
against it by its shareholders alleging that the bank and some of
its key employees had misled them by misrepresenting the actual
financial conditions of the bank as well as its acquisition target
Merrill Lynch at the peak of the 2008 economic crisis. Bank of
America's share price slumped considerably after the acquisition
owing to the multi-billion losses associated with Merrill Lynch.
The bank's need for a bailout from the government was also
presented as a direct result of the acquisition.
Bank of America settled the lawsuit for $2.43 billion. The bank
maintains that there was no wrongdoing on its part, and the
settlement was in the best interest of everyone involved.
See our full analysis for Bank of America
JPMorgan Chase's Bear Stearns unit has been sued by New
York Attorney General Eric Schneiderman for misleading
investors into buying mortgage-backed securities (MBS) worth
billions in 2006 and 2007 while being fully aware that the
underlying mortgages were likely to default. The securities have
lost as much as 25% of their principal value over the years.
Besides adding billions to JPMorgan's liabilities, the lawsuit
poses a bigger risk due to its strong political backing, and is
expected to spawn a series of similar lawsuits against other major
You can read more about this in our article
Politically Charged JPMorgan Lawsuit A "Template" For More Headache
See our full analysis for JPMorgan Chase
Within weeks of a complete makeover to its top management team
in the wake of the LIBOR-rigging scandal, Barclays is reportedly in
the process of revamping its investment banking business. The
proposed changes include merging the largest British bank's FICC
and equities trading units, while exiting some specific sub-units
which are prone to high risk.
The changes are the latest bid by the bank to re-instill
confidence among shareholders who have raised serious questions
about the bank's long term sustainability.
See our full analysis for Barclays
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