Bank shares showed a notable decline over this week when
investor sentiment weakened due to a series of reports that
indicated persisting economic issues in the U.S. as well as in
Europe. Anxiety levels were already rising since last week with the
two-month extension on various tax-hikes and spending cuts (the
'fiscal cliff') nearing its March 1st deadline.
With the Republicans and Democrats yet to reach a consensus on
the necessary steps required, a worse-than-expected unemployment
report for the country coupled with lower economic indicators for
Europe made the bigger picture gloomier for investors. And in the
midst of this, the minutes of the Federal Open Market
Committee's (FOMC) meeting held on Wednesday spooked investors by
hinting at a possible discontinuation of the quantitative-easing
program. The only thing that prevented shares from tanking over the
week was some optimism from positive movement in economic
indicators like the housing prices.
The KBW Bank Index has lost nearly 4% over trading through
Thursday this week.
Below are some significant events pertaining to major banks that
were witnessed over this week.
Citigroup & Capital One
Early this week,
Capital One Financial
) announced its decision to sell a portfolio of Best Buy (
), private label and co-branded credit card accounts to Citigroup (
). Capital One had obtained the Best Buy's business as a part of
its acquisition of HSBC's U.S. credit card business in late 2011,
and the move is the latest by the card-focused bank to end
partnerships with companies that do not share its strategic goals.
On the other hand, this acquisition marks a complete reversal of
policy by Citi Retail Services - Citigroup's store-branded card
business - which was earmarked for sale as part of Citi Holdings in
2011. The $7-billion portfolio is expected to change hands by the
third quarter of the year.
You can read more about how this transaction in our article
Citi Snaps Up Capital One's Best Buy Credit Card Portfolio
See our full analysis for Citigroup's stock
The country's biggest banks are finding it extremely difficult
to loan out money to prospective customers, even as deposits
continue to swell. The double whammy banks have been witnessing for
some months now is a result of the economic uncertainty, which is
making people bulk up their savings while remaining cautious about
taking on any debt. As a result, the average loan-to-deposit
ratio for the country's eight biggest commercial banks fell to a
five-year low of 84% in Q4 2012. In comparison, the loan-to-deposit
ratio was 101% in 2007.
The biggest U.S. bank, JPMorgan (
), fares the worst, with its loan-to-deposit ratio shrinking to 61%
at the end of last year.
See our full analysis for JPMorgan
Wells Fargo (
) seems to be in the process of shedding its 'conservative-banking'
shell with the bank reportedly keen on growing its private-equity
business despite impending restrictions from the Volcker Rule. The
bank which boasts of being responsible for originating one in every
three mortgages in the country intends to invest its own money
along with that from some of its investors in seed companies -
avoiding being held back by the Volcker Rule's 3% limit on such
investments by terming the business 'merchant banking' which is
exempt under the rule as it stands now.
See our full analysis for Wells Fargo
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