Financials Weekly Notes – BAC, BCS, C & SCHW
Most of the companies in the financials sector saw a move lower this week as markets reacted to lowered earnings estimates and amid macro uncertainty that has weighed on banks like JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and Citigroup (NYSE:C). We had written about this earlier this week in our article, Analysts Lower Estimates on Higher Reserves & Growth Concerns. Companies in this sector have started reporting their Q2 2011 performance figures this week with JPMorgan kicking off the earnings season among banks on Thursday and with Citigroup on Friday.
Below are some notes related to companies in the financials sector published this week from Trefis.
Is the Market Too Negative on Bank of America?
Bank of America’s (NYSE:BAC) stock saw a high of $15.25 during the second week of January this year and has since shed nearly a third of its value to around $10.30 recently. Much of the pessimism surrounds regulatory uncertainty due to concerns of tighter regulation and more stringent capital rules. We try to gauge the maximum possible impact of the proposed regulatory changes on our near $15 price estimate for Bank of America’s stock.
Barclays Sheds PE Assets as Stock Eyes $18
Barclays (NYSE:BCS) is clearly in a hurry to ensure compliance with the stringent capital requirement rules expected to bring all financial firms in Europe under scrutiny. That would explain the company’s decision to shed private equity assets worth about €520 million ($750 million). [1] AXA Private Equity will soon take ownership of these assets, currently managed by Barclays Capital – the group’s investment banking arm.
Citigroup Earnings: Mixed Reaction from the Market
Citigroup announced its Q2 2011 earnings before the open. In our preview note Citigroup Earnings Preview: What We’re Watching, we noted that two items that merit attention are the profit margins on its sales and trading business and the net interest margins of the consumer banking assets of the company.
We believe that the these two factors will be crucial in assessing the upside and downside potential for our $60 price estimate of the Citigroup stock which is a 30+% premium over its current market price. Following earnings we saw the shares trade higher on stronger than expected profit growth before drifting lower amid concerns of weak growth in its core consumer banking business.
Schwab Winding Down Troubled YieldPlus Fund
Charles Schwab Corporation (NYSE:SCHW) has decided to finally pull the plug from its proprietary YieldPlus family of funds. [2] The fund family includes the Tax-Free YieldPlus and California Tax-Free YieldPlus funds besides the once extremely popular taxable YieldPlus fund. The decision clearly is an attempt by the company to salvage its reputation with customers who invested in the fund – which has cost Schwab more than $350 million in regulatory fines and legal settlements. Schwab continues to manage a combined $1.7 trillion in client assets and competes with other online brokerage, banking and financial services firms like E-Trade (NASDAQ:ETFC), Ameritrade (NYSE:AMTD), Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC).
Barclays Sees 20% Upside as Consumer & Corporate Banking Recovers
Barclays (NYSE:BCS) has announced aggressive plans for its retail and business banking, corporate banking and wealth management divisions in efforts to boost its revenues by over $6.9 billion to $10.3 billion over the next couple of years. [3] To meet this target, Barclays expects retail and business banking to rake in $3.2 billion of additional revenues and the corporate and wealth management divisions to contribute an additional $1.6 billion in revenues each.
Notes:- Barclays agrees to sell a portfolio of approximately €520 million of private equity fund interests to AXA Private Equity, Barclays Press Release, Jun 30 2011 [↩]
- Charles Schwab Corp. liquidating YieldPlus funds, San Francisco Chronicle, 25 Jun 2011 [↩]
- Barclays Wants Billions More in Revenue, The Motley Fool quoting Bob Diamond [↩]