Weekly Financial Biz Recap: Wells Fargo and Morgan Stanley in the Hot Seat, BAC Slashes 16,000 Jobs

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Here’s your Cheat Sheet to this week’s financial industry business headlines:

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Shares of JPMorgan Chase & Co. (NYSE:JPM) moved down modestly on the day, as reports surfaced that it faces a money-laundering probe by the United States Comptroller of the Currency over whether it failed to monitor transactions that allegedly let criminals launder money.

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The government of Russia will finally initiate the divestiture of its $5 billion stake in Sberbank Russia (SBRBF.PK), following more than a year of postponements. The stake comprises about 7.6 percent of the bank’s worth, and the sale marks a re-start of privatization in the country.

Deutsche Bank AG (NYSE:DB) chooses for its new chief operations officer Jon Eilbeck, the former head of its global rates and commodities operations. Eilbeck will oversee DB’s wealth management unit, whose profits have been declining. The business has €900 billion, or $1.2 trillion, under management and Deutsche anticipates that integration efforts will permit it to bring a €1.7 billion annual pretax profit by the year 2015.

White Mountains Insurance (NYSE:WTM) brings a lawsuit against Allstate Corporation (NYSE:ALL), which alleges that the latter inappropriately reduced the final price in its acquisition of Esurance. Allstate had agreed to make an estimated payment at the closing, linked to Esurance’s tangible book value, along with an adjustment afterwards to reconcile the actual book value to the estimate, but the plaintiff asserts that it missed the deadline by five months.

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Citigroup Inc. (NYSE:C) announces that the senior risk manager in its CitiMortgage division, Jeffery Polkinghorne, and Donald Houghtalin, who serves as compliance officer at the business, are exiting the company subsequent to their being named by federal prosecutors earlier in 2012 in a mortgage-insurance fraud case that led to a $158.3 million settlement.

Purchasing stocks of firms having recently converted themselves into a real estate investment trust is a smart move, says dealReporter. If that remains to be true, Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) might be an interesting play following comments by the company’s chief executive on the most recent earnings conference call, which implied the possibility of conversion to a REIT in the future.

Citigroup Inc’s (NYSE:C) $4.7 billion writedown of its Morgan Stanley Smith Barney investment is not likely to decrease Chief Executive Vikram Pandit’s profit-sharing plan award, an amount that might reach almost $24 million. The reason for this is because the plan fails to count losses at Citi Holdings, the firm’s the dead-letter unit that holds its toxic assets which include the Smith Barney brokerage.

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Morgan Stanley (NYSE:MS) is experiencing difficulties from the Volcker Rule’s restrictions as to how much of its own capital a domestic investment bank is permitted to put at risk. The bank is currently attempting to raise a new multibillion-dollar infrastructure fund, according to Reuters.

Bank of America Corporation (NYSE:BAC) was paid approximately 20 percent more in 2011 by Fannie Mae (FNMA.OB) than was contractually obligated for the transfer of the servicing of troubled loans to another firm, according to a report by the inspector general for the Federal Housing Finance Agency, says Reuters.

The current period of historically low interest rates will put pressure on banks that now have the highest net interest margins over the next year, says Guggenheim, but those with lower margins that have already experienced such difficulties probably will not see much further shrinkage of spreads. The analysts believe that the five top United States banks that will face the least net interest margin compression through 2013 include The Bank of New York Mellon Corporation (NYSE:BK), State Street Corporation (NYSE:STT), Regions Financial Corporation (NYSE:RF), Northern Trust Corporation (NASDAQ:NTRS), and BB&T Corporation (NYSE:BBT).

Shares of specialty mortgage servicers such as Nationstar Mortgage Holdings (NYSE:NSM), Ocwen Financial Corporation (NYSE:OCN), and Walter Investment Management Corp. (AMEX:WAC) move up Wednesday from a group Buy by Compass Point because of “secular shift”. It is thought that these firms should experience ‘tremendous growth’ as banks have to offload their servicing portfolios. The firms listed above are all enjoying year-to-date gains.

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Wells Fargo & Co. (NYSE:WFC) and Morgan Stanley (NYSE:MS) have been accused by the law firm Gibbs & Bruns of failing to properly service $73 billion in residential mortgage bank securities. If the amount that the law firm obtained from Bank of America is any guide, the two banks now on the spot could lose as much as $2 billion.

Bank of America Corporation’s (NYSE:BAC) website experienced slow load times on Tuesday, according to the Charlotte Observer, with a few users unable to access the site at all. Rumors that the problems originated with a radical group which threatened a cyber attack were neither confirmed nor denied by the company, but an organization that claims to be linked with a militant Islamic group wrote on a site called Pastebin earlier on Tuesday that it would initiate an attack on Bank of America and the New York Stock Exchange beginning at 2 p.m.

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It is estimated that UBS AG (NYSE:UBS) will eliminate between 80 and 90 jobs in its European investment banking unit, comprising about 17 percent of its staff, in a move that will result in headcount decreases for the bank globally. Chief Executive Ermotti says that “The environment has changed. We have been very proactive in accelerating taking down costs… we will not be shy to continue to do so.”

Shares of American Capital Agency Corp. (NASDAQ:AGNC) moved down Wednesday, as the stock goes ex-dividend. Thus far, the decline exceeds the $1.25 dividend and observers wonder if a secondary offering might be forthcoming.

E*TRADE Financial Corporation (NASDAQ:ETFC) posts August daily average revenue trades of 121,570, which is down 5 percent from July, and 37 percent year-over-year. On the upside, The firm added a small number of customer accounts and brokerage assets gained somewhat for the month.

Top banks that include JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), UBS AG (NYSE:UBS), The Royal Bank of Scotland Group Plc (NYSE:RBS), and Deutsche Bank AG (NYSE:DB), have been requested by the Justice Department and the Commodities Futures Trading Commission to sign “tolling” agreements which will permit the agencies to file charges over alleged interest-rate manipulation beyond the statute of limitations, according to the Wall Street Journal. Moreover, the firms are expected to acquiesce rather than to prompt regulators to indict them while they try to last out the time limit.

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The staff reduction procedure at Bank of America Corporation (NYSE:BAC) is now accelerating and plans to eliminate some 16,000 jobs the end of 2012 will leave it with 260,000 workers, according to the Wall Street Journal. The layoffs comprise a portion of “Project BAC” which is targeted at bringing savings of $8 billion per year by 2015. The majority of the cuts will likely take place in the company’s consumer operations since the bank will shut 200 branches in addition to the 178 it closed last year.

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Thus far in 2012, the mortgage servicing sector has been the star of the banking industry, with the stocks of Nationstar Mortgage Holdings (NYSE:NSM), Ocwen Financial Corporation (NYSE:OCN), and Walter Investment Management Corp. (AMEX:WAC) coming to mind. However, investors should take heed as the sellside gets some traction. It is also good to remember that it’s mortgage servicing and the same issues that helped to induce the top banks to divest their portfolios could impact these specialty players.

Large anticipated job eliminations in Nomura Holdings, Inc.’s (NYSE:NMR) European investment banking division seem to be coming true on Thursday, as up to 30 percent of the positions are likely to be slashed, say multiple sources. The current move is ostensibly to reduce costs by $1 billion.

Deutsche Bank AG (NYSE:DB) might eliminate thousands of jobs throughout Germany, says the Süddeutsche Zeitung, as the company is poised to slash 543 jobs in the first wave as it trims its back-office services along with its information tech system. The bank had announced 1,900 job losses in July but indicated that most of those would be abroad.

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The Blackstone Group L.P. (NYSE:BX) continues its plunge into the single-family rental sector with plans to spend approximately $1 billion purchasing some 15,000 homes in Tampa over the next three years. One property manager remarked that, “It’s a land grab unlike anything I’ve ever seen. You’re going to drive through parts of town and all of it is going to be institutionally owned.”

Acting Chief Executive Martin Klein of Genworth Financial, Inc. (NYSE:GNW) says that Moody’s can go ahead and downgrade away, as it’s more costly for the company to defend its investment-grade status, commenting that such a cut won’t alter the firm’s bond spreads, and it’s better for investors to see “what this means… it’s not the end of the world.”

Western Asset Mortgage Capital Corporation’s (WMC) big dividend increase on Thursday night, along with the rise of its book value by 12 percent since June 30th, has positively impacted the mortgage real estate investment trust sector. The book value jump might indeed have investors wondering which others in the sector could contain similar goodies.

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Friday sees Schwab fee reductions, as both the Schwab U.S. Broad Market (NYSE:SCHB) and the Schwab U.S. Large-Cap ETFs (NYSE:SCHX) are currently the cheapest in the industry, with fees decreased from 0.06 percent to 0.04 percent. Bond funds, including the Schwab U.S. Aggregate Bond ETF (SCHZ), were slashed to 0.05 percent from 0.10 percent.

Are these stocks a buy or sell? Let us help you decide. Check out our Wall St. Cheat Sheet Stock Picker Newsletter now >>

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