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Bank Stock Roundup: Legal & Regulatory Issues Draw Attention; Citigroup, JPMorgan in Focus - Analyst Blog


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The banking industry saw resolution of legacy legal issues and restructuring activities in the last four trading days. Also, banks are making provisions with an aim to settle litigation issues. This has led some industry participants to restate previously released quarterly results. Last week, The Bank of New York Mellon Corp. ( BK ) joined this league.

Moreover, as per a Wall Street Journal report, U.S. regulators are once again working on pay rules to cut back pay packages. Employees might be required to return their bonuses for fraud or heavy blunder. This 'clawback' provision will form part of the incentive compensation rules outlined in the 2010 Dodd-Frank law.

These rules are aimed to make companies' incentive packages commensurate with their long-term financial health, taking into account their size and complexity. During the week, it was revealed that the Chairman as well as CEO of Bank of America Corp. ( BAC ) will be receiving lower stock-based compensation for 2014 as compared with 2013, owing to a decline in overall profitability.

(Read the last to last week's development here: Bank Stock Roundup for Feb 13, 2015 )

Recap of the Week's Most Important Developments:

1. Legal settlements continue to roll as regulators are beefing up investigations over banks' past business misconduct. Citigroup Inc. ( C ), The Goldman Sachs Group, Inc. and UBS AG agreed to pay $235 million (in aggregate) to resolve certain lawsuit claims over residential mortgage-backed securities issued by former Residential Capital LLC (ResCap) in the pre-crisis period.

The New Jersey Carpenters Health Fund, the union fund, on behalf of a number of investors, reached the accord on Friday. However, the settlement is subject to court approval (read more: Goldman, Citi, UBS Shell Out $235M to Settle RMBS Suit ).

2. JPMorgan Chase & Co. ( JPM ) is mulling over trimming some of its trading operations, as a new Federal Reserve rule is expected to lower profitability from such businesses. This was disclosed by Daniel Pinto, CEO of the bank's Corporate and Investment Bank ("CIB") segment, in an interview with Bloomberg News.

JPMorgan generated higher revenues from its CIB segment in 2014, but an increased level of capital requirement lowered the overall profitability. Also, the company is now required to set aside more capital as buffer, owing to the additional capital surcharge proposed by the Federal Reserve (read more: Why JPMorgan Plans to Shrink Trading Operations ).

3. It has become a trend among banks to come up with revised earnings as a result of legal settlements and/or additional reserve taking. The latest to join this list is BNY Mellon. The company has announced the recording of an additional legal expense of $598 million, leading to restatement of fourth-quarter and 2014 results.

Presently, BNY Mellon's net income applicable to common shareholders in the fourth quarter stands at $209 million or 18 cents per share. On Jan 23, the company had reported net income of $807 million or 70 cents per share (read more: BNY Mellon Restates Earnings over Additional Legal Cost ).

4. The year 2014 saw endless litigation issues and settlements for BofA, the impact of which could be seen on its profitability. Apparently, impact of last year's dismal earnings will be reflected on the pay package of the bank's Chairman and the CEO Brian Moynihan.

Moynihan is expected to receive $13 million as total compensation for 2014, which reflects a decline of over 7% from his remuneration in 2013. This move, however, did not come as a surprise, given the company's struggling profitability throughout the year (read more: BofA Cuts Back CEO Salary: Impact of Dismal Earnings? ).

Price Performance

Overall performance of the banking stocks remained pessimistic during the last four trading days, as the negative market sentiments prevailed despite the banks taking several measures to end legal issues and restructure business. Most of the banking stocks showed a negative price movement.

Company

Last Week

6 months

JPM

-0.7%

4.1%

BAC

-2.4%

5.1%

WFC

-1.4%

8.7%

C

-0.2%

2.7%

COF

0.7%

-1.1%

USB

-1.7%

7.5%

PNC

-0.8%

10.9%


In the last four trading sessions, Capital One Financial Corp. ( COF ) was the only gainer, with its share price inching up 0.7%. Major losers included BofA and U.S. Bancorp ( USB ), with their shares falling 2.4% and 1.7%, respectively.

Over the last six months, The PNC Financial Services Group, Inc. ( PNC ) and Wells Fargo were the top performers, with their shares advancing 10.9% and 8.7%, respectively. However, shares of Capital One had witnessed a 1.1% price decrease over the same time frame.

What Next in the Banking Universe?

In the coming five days, nothing big is expected on the banking front. Hence, the stocks concerned are expected to perform in a similar fashion.

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JPMORGAN CHASE (JPM): Free Stock Analysis Report

PNC FINL SVC CP (PNC): Free Stock Analysis Report

CAPITAL ONE FIN (COF): Free Stock Analysis Report

US BANCORP (USB): Free Stock Analysis Report

BANK OF NY MELL (BK): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

BANK OF AMER CP (BAC): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , Business , Stocks
Referenced Symbols: JPM , PNC , COF , USB , BK



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