Weekly Financial Biz Recap: Lloyds Eyes Divestment, Libor Scandal Hits
Wells Fargo (NYSE:WFC) purchases WestLB’s subscription finance portfolio, which includes around $6 billion in commitments, with about $3 billion outstanding. Financials of the transaction were not reported.
Morgan Stanley’s (NYSE:MS) division in Germany is currently without an official chief, as Dirk Notheis was granted a leave of absence subsequent to his allegedly sending emails to the premier of a German state, which has made regulators uneasy. Supposedly the contents of the messages ignited suspicions that Notheis and that government had a relationship that was too close for proper business norms.
The new Fed rule pertaining to increased capital requirements is pressuring big banks to divest assets. Bloomberg data indicate that lending by JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) fell 4.9 percent year-to-year to $3.04 trillion in the first quarter, but loans at the 17 smallest firms in the KBW Bank Index rose 9.8 percent to $1.27 trillion. Separately, the recent drop in JPMorgan shares has led Goldman Sachs to add the company to its Conviction Buy list, pointing out near term earnings, returns visibility and a favorable risk/reward. Further, JPM is forecast to earn $5.32 per share next year, says Eddy Elfenbein, which means that earnings per share could be higher in 2013 than it was in 2006 and 2007 when the stock traded for more than $53.
First Horizon (NYSE:FHN) shares jump on the news that it will take a $272 million charge for bad mortgages that it might be required to repurchase from Fannie and Freddie. This might not be technically called good news, but it does remove some uncertainty from the situation, and in reaction Morgan Stanley upgrades the shares to Overweight.
Lloyds (NYSE:LYG) is ready to divest a network of 630 branches to the Co-op, in a transaction projected to be valued at between £1 billion and £1.5 billion, according to The Financial Times. The Co-op is the preferred bidder, but negotiations have lagged because of several difficulties, especially regulatory issues, most of which are now settled.
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Barclays (NYSE:BCS) should be set to announce its resolution with the Commodity Futures Trading Commission and the U.K.’s Financial Supervision Authority concerning allegations that its staff attempted to manipulate the London interbank lending rate, according to The Financial Times. The United States Justice department has agreed to not prosecute the bank, but Barclays will now have to pay more than $450 million in the U.K., with a record $200 million going to the CFTC, and $92.8 million to the FSA.
Fifth Third Bancorp (NASDAQ:FITB), KeyCorp (NYSE:KEY), and Comerica (NYSE:CMA) are now on the list of favorite banks compiled by Stephen Scinicariello at UBS. The analyst sees the new additions as having been unfairly punished along with the Too Big To Fail club, even though they don’t have much exposure internationally. Scinicariello also forecasts that the regional banks will gain from the “new regulatory paradigm.”
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Shares of JPMorgan (NYSE:JPM) tumble as speculation mounts that the now-famous trading loss might reach $9 billion, according to person briefed on the situation. The company moves faster than observers expect to divest its positions that are losing cash, as it now appears that Jamie Dimon was dramatically understating the situation when in May he warned that the loss could ‘double’ from the first-reported $2 billion, in the coming quarters. At the same time, JPM is downplaying the $9 billion prediction to Kate Kelly, saying that it will ultimately amount to between $4 billion and $6 billion. Earnings at scheduled for July 13th; is that on a Friday by any chance?
The United Kingdom is having a blockbuster banking scandal of its own, as several politicians there are demanding that Barclays’ (NYSE:BCS) Bob Diamond step down following that bank’s attempted Libor manipulation. One MP commented that “This is the most corrosive failure of moral behaviour I have seen in a major U.K. financial institution in my career”, and another remarked that, “If Barclays’ board had an inch of backbone between them they would sack him.”. While this was going on, the bank’s shares went over the cliff in London and New York, as the impact of Barclay’s admission that it rigged the world’s largest and important market filters through after 24 hours. And now, HSBC (NYSE:HBC), Lloyds (NYSE:LYG), and the Royal Bank of Scotland (NYSE:RBS) have come under inquiry into the same matter, says Chancellor Osborne to Parliament. Court documents in an unrelated case have surfaced that accuse the hedge fund Brevan Howard requesting that RBS alter Libor, and that the bank “received this request without objection”.
Fallout from Barclays’s (NYSE:BCS) Libor manipulation faux pas is crossing the Pond on Thursday, as financials in New York are slumping in sympathy. Pressure is mounting in Parliament for the U.K. bank’s chief Bob Diamond to step down, while in New York Jamie Dimon is fighting back chatter that JPMorgan’s (NYSE:JPM) trading Loss could reach $9 billion. However, it’s probably the Barclay’s headlines that are pulling down shares of Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and other top financials.
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ING (NYSE:ING) has given in to public outrage in the Netherlands, and will abolish bonuses for its locally-based staff. A company spokeswoman explained that, “We are part of society and you need to be open to the opinions in society”, as the bank will instead grant its 19,000 employees an incremental pay rise over the next 18 months. Public resentment towards the proposed bonuses was fed by the fact that ING has not yet repaid its bailout loan from the government.
Credit Suisse (NYSE:CS) expects that it will “…be profitable at the Group level and in all its divisions” in the second quarter, confirming a Swiss report that reported similar predictions. However, the Swiss National Bank said in June that CS needs to boost capital “substantially” in 2012, which is putting the firm’s shares under pressure.
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New York Community Bancorp (NYSE:NYB) finalizes its assumption of $2.2 billion in deposits from Aurora Bank, for which it was payed $24 million by the latter for taking on the deposits. Total assets of NYB stand currently at $43 billion.
Citigroup (NYSE:C) closes on its divestiture of EMI Music Publishing, to a group comprised of Sony and Blackstone, among others. The price tag of the sale was $2.2 billion, for which permission was granted earlier by the Federal Trade Commission. The transaction will create the world’s largest catalog of music publishing rights.
The Libor scandal is going full tilt in the U.K. on Friday. Highlights include a stiff fine, the need for redress and a resignation refusal. The Royal Bank of Scotland (NYSE:RBS) will likely be fined $233 million for its involvement in the manipulation of Libor, reports the Times of London, with other financial firms such as Barclays (NYSE:BCS), HSBC (NYSE:HBC), and Lloyds (NYSE:LYG) under inquiry. The United Kingdom’s Financial Services Authority says that these (and perhaps more) companies will be required to “provide appropriate redress” in cases of mis-selling interest rate swaps to customers, adding that the mis-sales had dealt “severe impacts” on several businesses. Meanwhile, the Bob Diamond drama goes on, as the embattled Barclays CEO remains adamant that he will not step down. However, he must testify before Parliament, and in a letter to that body, he maintains his ignorance of the matter, saying that there exists no evidence that knowledge of the manipulation rose higher than “immediate desk supervisors … When the trader conduct was first discovered … steps were immediately taken to stop it.”.
JPMorgan’s (NYSE:JPM) risk models are under tighter scrutiny, as the Office of the Comptroller of the Currency is now said to have requested assessments of the models, say sources. The models in question are said to measure the ramifications and unintended consequences of everything from trading losses to interest-rate moves.
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