Weekly Financial Biz Recap: Knight Capital BLUNDER, AIG Earnings
Royal Bank of Scotland (NYSE:RBS) Chief Executive Stephen Hester warns that the company expects a large fine from to the Libor scandal, but he does not yet know its magnitude. Hester has told The Guardian that getting the government out of RBS will take more time than hoped, because of the weak economy and the many changes in the regulatory situation.
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Wells Fargo & Co. (NYSE:WFC) is reacting to the stronger real estate market by reinvigorating its homebuilder finance division in Charlotte . The bank is all the way back in the business of lending, not only to current favored clients, but is also soliciting new clientele.
Credit Suisse Group AG (NYSE:CS) says that 97 percent of subscription rights for $1.94 billion in convertible bonds were exercised. Chief Executive Brady Dougan commented that, “A significant vote of confidence from both our new and existing investors.” More than 50 percent of the notes were owned by Qatar, Temasek, and BlackRock, and other strategic investors.
JPMorgan Chase & Co. (NYSE:JPM) shares are off a bit on Monday, compared to those of the others in the Too Big To Fail Club. Reason is likely the downgrade from Buy to Hold at Deutsche Bank. Matt O’Connor at that company remarked that “Risks at most peers no longer seem to be outsized versus those at JPM – liquidity and capital differences have narrowed and certain peers seem ready to be more aggressive in maintaining/gaining market share.”
Newcastle Investment Corporation (NYSE:NCT) has rebounded from most of its big slide that followed last Wednesday’s secondary offering. The firm is the latest of several mortgage real estate investment trusts issuing shares at prices far exceeding their book value, the proceeds of which are then invested in higher-yielding assets, that in turn yield increased book values.
PennyMac Mortgage Investment Trust (NYSE:PMT) shares move on up after obtaining a $100 million repo line from Barclays. The firm was launched in 2008 by ex-Countrywide officers, and is an aggressive buyer of mortgages, including jumbo loans. However, PennyMac has yet to securitize and sell any of them.
Morgan Stanley (NYSE:MS) reconfigures Morgan Stanley Smith Barney, its brokerage division, cutting back the number of regional units along with managerial jobs, which marks the second reduction of its kind in less than a year. Profit margins in wealth management are increasing, from 11 percent to 12 percent in the most recent quarter, but still are below the company’s mid-teens target.
Bank of America Corporation (NYSE:BAC) executives and officers have joined others in discussing the idea of breaking up the Too Big Too Fail banks, but decided against it, say sources. However, Eddie Crutchfield, who helped to shape First Union into a sizable player in the 1990s, joins the Sandy Weil and Phil Purcell group, commenting that placing “gargantuan, completely unrelated businesses under one roof is probably not a good idea.”
UBS AG (NYSE:UBS) blames the exchange operator Nasdaq OMX Group, Inc. (NASDAQ:NDAQ) for its second quarter results being allegedly harmed by Facebook’s IPO fiasco and is bringing legal proceedings against the operator. It claims to have lost 349 million Swiss francs ($357 million) following the “gross mishandling” of the matter. Meanwhile, UBS shares fell in Switzerland and in New York after the firm posted a sharp decrease in net profit and warned of continued “headwinds” for the third quarter. UBS says that it will continue to search out ways to improve efficiency, but details have not been forthcoming.
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The Federal Housing Finance Agency has calculated that Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) could save $3.6 billion by shrinking the balances for certain homeowners who are ‘under water’, according to the Wall Street Journal. Up until now, the Agency has said that the firms’ existing rescue programs were cheaper, but now it’s to soon decide whether to drop its still-current opposition to Fannie and Freddie taking part in a debt-forgiveness program.
Visa, Inc. (NYSE:V) is in trouble with the European Commission, whose regulators allege that the company has damaged competition among banks, unnecessarily pushed up costs, and ultimately increased consumer prices through its cross-border credit-card fees and domestic charges in eight countries. The firm has only recently resolved its differences with merchants in the United States over tariffs.
ING Groep N.V. (NYSE:ING) apparently believes that it could bring more for its Asian insurance division by breaking it up and divesting it in pieces, says a source. The firm is presently in discussions with several potential bidders for its South Korean unit and has received offers from others for its Japan division.
Deutsche Bank AG (NYSE:DB) says that it will eliminate 1,900 jobs, mostly outside of Germany, as a part of its plan to arrive at €3 billion in cost savings. The proposed cuts should contribute around €350 million to that amount.
Citigroup (NYSE:C) is said to be offering a minimum of $500 million 3-year notes as soon as Tuesday. The moves marks the bank’s first issue of dollar-denominated paper since late in February when it sold 5-year notes yielding Libor.
ARMOUR Residential REIT Inc. (AMEX:ARR) is hit with a large sell order. Just after a July 9 secondary, which was its third in 8 months, shares have recovered from that decline to new 52-week highs. Meanwhile, Dividend Master predicts another “huge” secondary, and calculates that the stock trades at a 14 percent bonus to book value. Shares are up 9 percent year-to-date, with a 15.6 percent annualized dividend.
A former employee at Citigroup, Inc. (NYSE:C), Brian Stoker, has been found not guilty in the first court test of the Securities and Exchange Commission’s claims that investors were misled by banks during the financial crisis when they purchased mortgage-linked securities, according to the Financial Times. Citigroup had agreed to pay $285 million to resolve the charges, without admitting or denying wrongdoing, but a judge rejected that agreement, and that ruling is currently on appeal.
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Shares of American Tower Corporation (NYSE:AMT) spiked momentarily Tuesday morning then returned to normal, even though the company’s second quarter results showed a 58 percent drop in net profit to $48.2 million, due to $118.6 million in losses linked to unrealized foreign currency impacts along with other items. However, the firm raises its guidance for adjusted funds from operations to between $1.19 billion and $1.21 billion, compared to a prior forecast of $1.17 billion to $1.2 billion, and also affirms its rental and management revenue outlook
Nasdaq OMX Group Inc. (NASDAQ:NDAQ) is increasing its share buyback by $300 million, which is 8 percent of the float. The Group is under a legal threat brought by brokers who lost millions of dollars in the Facebook (NASDAQ:FB) initial public offering.
Shares of Knight Capital Group, Inc. (NYSE:KCG) are falling off the graph mid-afternoon on word of technical problems with a trading algorithm. The New York Stock Exchange halted and resumed trading in some of the approximately 148 stocks in the Excel spreadsheet that made no significant news on their own, but were swung around by the glitch. Notable names in the group include RadioShack Corporation (NYSE:RSH), Quicksilver Resource Inc. (NYSE:KWK), Magnum Hunter Resources Corporation (NYSE:MHR) and Dole Food Compny Inc. (NYSE:DOLE). The NYSE is currently reviewing the trades.
Shares of MGIC Investment Corporation (NYSE:MTG) lose more than half their value Thursday, following the report of a second quarter loss of $1.36 per share compared to 75 cents year-over-year. This loss brings the MGIC’s risk to capital ratio to 30:1, which is above the 25:1 level at which regulators are permitted to bar a company from writing new policies.
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Chief Executive Mike Farrell of Annaly Capital Management, Inc. (NYSE:NLY) announces to earnings call participants that the firm has extended its average days-to-maturity on liabilities to 216 days, which is 156 days more than the next highest agency real estate investment trust. In addition, 12.4 percent of its borrowings have a maturity greater than 1 year, compared to 4 percent for its industry peers.
JPMorgan Chase & Co. (NYSE:JPM) will probably not resume stock repurchases in 2012 nor early in 2013 due to The Loss, according to a couple of analysts following a meeting with the company’s top management. Regulators are currently making decisions in regards to capital returns, even though JPMorgan is making money, is well capitalized, and, at least to some, has an inexpensive stock.
American International Group Inc. (NYSE:AIG) wants to buy back a significant amount of its stock from the United States Government, which if successful, might decrease the latter’s 61 percent stake to under 50 percent by the fall. However, such a change would then cause heavier Federal Reserve oversight. The United States Treasury and New York Federal Reserve Bank have thus far made a profit of $14 billion on the bailout of AIG, which amount could exceed $18 billion by autumn, according to the Wall Street Journal.
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United Kingdom’s cabinet ministers might purchase the remaining 18 percent of The Royal Bank of Scotland Group (NYSE:RBS) that the government does not already own, reports the Financial Times. Such a move would be part of a stimulus to the faltering British economy, as then the Bank could be made to lend more money to businesses. Finance Minister George Osborne is against the sale which would cost £5 billion and also require clearance from the European Commission.
The Dutch bank ING Groep N.V. (NYSE:ING) is mulling the divestiture of its online banking operations in the United Kingdom and Canada, in order for the firm to sharpen it focus. ING is raising cash to repay a €10 billion rescue during the financial crisis, and has thus been selling off certain of its assets.
Knight Capital Group Inc. (NYSE:KCG) reports a $440 million loss from yesterday’s tech glitch that resulted from the installation of trading software that has now been removed. At mid-afternoon shares have lost more than half their value since the open, and are still falling.
Citigroup Inc’s (NYSE:C) board has told Chief Executive Vikram Pandit to initiate the planning for succession, according to the Wall Street Journal. Pandit, 55, intends to remain in his position, but the board apparently wants a clean succession list, as opposed to the sort of situation in which in which Pandit himself was unexpectedly propelled into the top job in 2007 with only five months at Citigroup to his credit.
The Royal Bank of Scotland (NYSE:RBS) is still losing money and mired in the Libor scandal, along with the government threatening its complete nationalization. The New York Post reports that now the company might have to divest in U.S. commercial banking operation, Citizen’s Bank; Toronto-Dominion Bank (NYSE:TD) is among possible suitors, but sources believe that the two were far apart in regards to price, and the discussions are not currently active.
The Blackstone Group L.P. (NYSE:BX) has been removed from Citigroup’s Top Picks Live list and supplanted with Och-Ziff Capital Management Group LLC (NYSE:OZM). Citigroup regards the latter as ‘the more near-term actionable idea in the asset-management arena’, and Och-Ziff shares jumped by 11.7 percent Thursday on earnings.
Bank of America Corporation (NYSE:BAC) reported Thursday that has received requests for information from authorities in both the United States and the United Kingdom concerning the setting of Libor and other inter-bank rates. Additionally, the company is a defendant, along with other banks, in lawsuits brought by investors concerning the matter. Bank of America will take a third quarter charge of $800 million linked to a drop in the United Kingdom tax rate, and it will contribute $738 million to the credit-card price-fixing resolution in the United States (10-Q). Separately, the company is in discussions with Fannie Mae (FNMA.OB) regarding the agency’s request that it repurchase billions of dollars worth of bad mortgages have recently become more constructive, according to Reuters.
Former JPMorgan Chase & Co. (NYSE:JPM) executive Javier Martin-Artajo is said to have repeatedly talked “London whale” Bruno Iksil into posting higher valuations on some trades than might have been received in the market at the time, which is the reason that mounting losses were discovered so late, says the Wall Street Journal. However, those valuations were within a wide band that was set by JPM’s oversight group, so they were duly okayed.
Fallout from the now-infamous Knight Capital Group, Inc. (NYSE:KCG) tech glitch keeps coming, as the New York Stock Exchange Chief Executive Duncan Neiderauer remarks that “Nobody rational would look at this (market) and say it isn’t broken, Speed is not always better.” On the other hand, Neiderauer says that the exchange strictly followed the rules when it cancelled erroneous trades in 6 of the 150 affected stocks. Knight Capital shares are moving up mid-afternoon, but are considerably below pre-glitch levels.
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