Weekly Financial Biz Recap: Libor Lawsuits Piling Up, BofA Falters on Mortgage Agreement
Regulation modifications that could come from some states would require insurers like American International Group Inc. (NYSE:AIG) and MetLife, Inc. (NYSE:MET) to increase the reserves they maintain against the riskier mortgage bonds they’ve recently purchased by billions of dollars. The National Association of Insurance Commissioners could implement the changes later in 2012, in a move which would lessen interest in the assets.
Insurers such as American Financial Group Inc. (NYSE:AFG), QBE Insurance Group (QBEIF.PK), and Wells Fargo’s (NYSE:WFC) rural communities with large exposure to effects of the drought will likely see their biggest agricultural loss ever, with gross indemnities totaling some $30 billion along with an underwriting loss of $18 billion. However, the government will pay for $14 billion of the amount through reinsurance programs and private firms will provide between $4 billion and $5 billion.
The lawsuits brought against banks because of their alleged manipulation of the Libor and other rates are mounting up, causing The Charles Schwab Corporation (NYSE:SCHW), insurers, cities, lenders and individual investors to assess or to initiate their legal options. BlackRock, Inc. (NYSE:BLK), Federated Investors Inc. (NYSE:FII) and Calpers are among many firms now looking to see if they lost money. Current estimates for the banks’ liabilities range between $7.8 billion and $176 billion.
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Deutsche Bank AG (NYSE:DB) has become the first such firm to extend clawbacks, bringing into play rules that allow it to strip employees of stock they earned through previous employers. At the moment, these almost punitive measures should cause Deutsche to have trouble filling vacancies, but other lenders will very likely copy the policy before long.
Citigroup Inc. (NYSE:C) will shell out $24.9 million to resolve a lawsuit alleging the bank misled its investors about $1.88 million in mortgage-backed securities they purchased prior to the housing market crash.
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Bank of America Corporation’s (NYSE:BAC) Wealth Management division conducts a conference call Tuesday with John Paulson of Paulson & Co., which should allow that company’s retail advisers and clients an opportunity to comment upon his disappointing year-to-date performance. Paulson’s Advantage Plus fund is down 18 percent so far this year, and his Advantage fund is down by 13% percent.
The divestiture of its headquarters helped The Bank of Nova Scotia‘s (NYSE:BNS) fiscal third quarter income of $1.69 per share gain 54 percent year-over-year. The sale contributed 53 cents to the total, but without that the gain was 5.5 percent for that period. The dividend was raised by 2 cents to C$0.57 per share.
The insurance consultancy firm Enstar Group (NASDAQ:ESGR) will purchase the insurance holding company SeaBright Holdings (NYSE:SBX) for approximately $249 million in cash, or $11.11 per share, which represents a 34 percent bonus to SeaBright’s Monday close.
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JPMorgan Chase & Co. (NYSE:JPM) and CME Group Inc. (NASDAQ:CME) should gain the most if institutional investors will elevate their financial sector exposure just up to a neutral weighting, says Keefe, Bruyette. Underweight financials funds are only 14 basis points below that mark today.
KKR & Co. L.P. (NYSE:KKR) is in discussions concerning a likely ¥100 billion ($1.3 billion) investment in Renesas Electro Adr (RNECY.PK). Such an agreement that would allow the American private equity firm a controlling stake in the Japanese chipmaker, which is owned by NEC, Hitachi and Mitsubishi Electric. Chatter on the deal pushed Renesas’ shares up by 35 percent in Tokyo.
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R.R. Donnelley & Sons Company (NASDAQ:RRD) is subject to a court filing by the Securities and Exchange Commission, that will try to force the firm to supply records that it prepared for banks that underwrote the securities for Residential Capital’s loans. In turn, the latter is being investigated by the Commission for possible misconduct in loan originations and underwriting, along with possible fraud in the sale of mortgage bonds.
Morgan Stanley (NYSE:MS) and Citigroup Inc. (NYSE:C) now say that they will not set the valuation of their Smith Barney brokerage joint venture until September 10th, as the banks continue to disagree about MS’s purchase of a 14 percent investment from Citigroup. The latter firm values its 49 percent holding in the venture at $11 billion, and MS’s offer represents 40 percent of that estimate. The firms have recruited Perella Weinberg to help resolve the dispute.
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Bank of America Corporation (NYSE:BAC) has failed so far to complete any first-mortgage modifications that reduce loan balances for borrowers under the $25 billion agreement reached earlier in 2012, according to Joseph Smith, the official monitoring the agreement. However, five financial institutions which are a part of the settlement have provided $10.6 billion in relief for consumers from March 1st to June 30th, with $8.7 billion in the form of short sales through which customers sell their homes that are ‘under water’ for less than the value of the mortgage. Bank of America did produce $4.8 billion in short sales, which was the most of the five banks, according to the first report by the settlement monitor.
An unusually large increase in income from capital markets helped the Royal Bank of Canada’s (NYSE:RY) profits take off year-over-year in its third fiscal year by 18 percent, as the above income went up 88 percent to $486 million. Adjusted quarter earnings were $1.31 per share, and the company raised its dividend from 5 cents Canadian to 60 cents.
Validus Holdings, Ltd. (NYSE:VR) will buy Flagstone Reinsurance Holdings, S.A. (NYSE:FSR) in a $600 million cash and stock transaction, which the buyer hopes will reinforce its property reinsurance operations. Validus is paying $8.43 per share, which marks a 19 percent bonus to Flagstone’s Wednesday close.
Shares of the investment bank Gleacher & Co. (NASDAQ:GLCH) moved up on the day on word that it has retained a financial adviser to help in exploring strategic alternatives, among which include acquisitions, cooperating with equity investors, asset divestitures, or a business combination.
Fallout from JPMorgan Chase & Company’s (NYSE:JPM) “London Whale” faux pas caused mutual find managers to divest the shares, and in one sense had the lowest weighting of the stock in their portfolios in at least seven years, according to analysts at Bernstein Research, says Reuters.
Citigroup Inc. (NYSE:C) will shell out $590 million in resolution of a lawsuit brought by a shareholder lawsuit who alleges that executives misled investors about the bank’s difficulties the financial crisis. The firm still denies the allegations, but also wants to make the case go away. Is this setting a good precedent?
The United Kingdom’s Serious Fraud Office is now into its second criminal inquiry into Barclays PLC (NYSE:BCS). This new investigation looks at payments made under arrangements between the firm and Qatar Holding, during its Middle East capital raising program in 2008. Meanwhile, Barclays has appointed Antony Jenkins as chief executive to replace Bob Diamond, who stepped down as a casualty of the Libor scandal.
Former FBI Director Louis Freeh, who is now trustee for MF Global Holding’s (MFGLQ.PK) parent company, requested Wednesday that the company’s other bankruptcy administrators in the United States and in the United Kingdom reach a “global resolution” with him concerning getting money back for creditors and clients, as opposed to proceeding through expensive and time-consuming litigation.
The new Barclays PLC (NYSE:BCS) Chief Executive Antony Jenkins has informed the Financial Times that he’s lowering the company’s return-on-equity goal to between 11 and 11.5 percent from the 13 to 15 percent range targeted by his predecessor Bob Diamond. Jenkins’ number one priority is to gain back Barclays’ stained reputation, and to that effort he intends to unveil a “transformational plan” during the first quarter of 2013, which might take 3 to 5 years to implement.
The new plan for the improvement of capital has earned the Swiss bank Credit Suisse Group AG (NYSE:CS) an upgrade from Sell to Hold at ING. The research firm commented that, “While the plan leads to a substantial increase in shares outstanding, it also reduces uncertainty around Credit Suisse’s share count and improves valuation through a lower deduction for capital shortfalls.”
Brazil’s Banco Bradesco, S.A. (NYSE:BBD) has 18 out of 24 analysts that were surveyed recommending a Buy, which represents the highest rating for any stock on the Bovespa. Most respondents are counting on a re-acceleration of the nation’s struggling economy due to the 500 basis points of central bank rate cuts filtering through. Brazil’s largest lender, Itau Unibanco Holding S.A. (NYSE:ITUB), is similarly valued and rated.
A projected $1 billion cost reduction plan for the next fiscal year has shares of Nomura Holdings, Inc. (NYSE:NMR) moving up on Friday, according to the Wall Street Journal. This is the first sign of how Japan’s largest brokerage might operate under its new management. The proposed cuts follow another $1 billion in cost reductions in its wholesale division that were implemented earlier in 2012.
Morgan Stanley Smith Barney (NYSE:MS) might lose a group of top managers, as the employees who oversee tens of billions of dollars are unhappy with technology issues, say sources. Chief Executive Jamie Gorman is said to be aware of the situation and pledges to work on it, even though a company spokesperson says that it’s not known if anyone is set to exit.
JPMorgan Chase & Co. (NYSE:JPM) and Siemens (NYSE:SI) were the top borrowers who sold corporate bonds in August with a total of $237.6 billion of debt by the former, which was more than the $235.3 billion raised in August 2010, according to Bloomberg data. The month of August has seen a record jump in global sales of corporate bonds, as issuers hurried to lock in record-low borrowing rates.
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