After a slow start, bank stocks gained momentum towards the middle of the week to regain most of the value they lost over the last two weeks. With no major events affecting the stock market over the first two days of the week, prices remained largely unchanged over that period, before a series of better-than-expected economic indicators for the U.S. and a positive outlook for the euro by the ECB President Mario Draghi helped boost investor sentiments. The U.S. factory orders data for the month of August showed that orders had declined by a less-than-expected 5.2%. Initial job reports also added to investors’ optimism. Draghi’s emphasis that “the euro is irreversible” also helped cement hopes of a recovery in Europe.
As far as individual banks are concerned, JPMorgan Chase (NYSE:JPM) made the headlines for being sued by New York Attorney General Eric Schneiderman in what is the first action by the Residential Mortgage-Backed Securities Working Group formed by President Obama this January. While the largest U.S. bank jostles with another multi-billion dollar lawsuit, its closest competitor Bank of America (NYSE:BAC) announced that it is settling the class action lawsuit related to Merrill Lynch against it by shareholders for whopping $2.43 billion. On the other side of the Atlantic, Barclays’ (NYSE:BCS) newly appointed top-management team is reportedly working on a new structure for its investment banking operations.
Bank of America
Bank of America finally called to close the class-action lawsuit against it by its shareholders alleging that the bank and some of its key employees had misled them by misrepresenting the actual financial conditions of the bank as well as its acquisition target Merrill Lynch at the peak of the 2008 economic crisis. [1] Bank of America’s share price slumped considerably after the acquisition owing to the multi-billion losses associated with Merrill Lynch. The bank’s need for a bailout from the government was also presented as a direct result of the acquisition.
Bank of America settled the lawsuit for $2.43 billion. The bank maintains that there was no wrongdoing on its part, and the settlement was in the best interest of everyone involved.
See our full analysis for Bank of America
JPMorgan Chase
JPMorgan Chase’s Bear Stearns unit has been sued by New York Attorney General Eric Schneiderman for misleading investors into buying mortgage-backed securities (MBS) worth billions in 2006 and 2007 while being fully aware that the underlying mortgages were likely to default. The securities have lost as much as 25% of their principal value over the years.
Besides adding billions to JPMorgan’s liabilities, the lawsuit poses a bigger risk due to its strong political backing, and is expected to spawn a series of similar lawsuits against other major banks.
You can read more about this in our article Politically Charged JPMorgan Lawsuit A “Template” For More Headache To Follow.
See our full analysis for JPMorgan Chase
Barclays
Within weeks of a complete makeover to its top management team in the wake of the LIBOR-rigging scandal, Barclays is reportedly in the process of revamping its investment banking business. [2] The proposed changes include merging the largest British bank’s FICC and equities trading units, while exiting some specific sub-units which are prone to high risk.
The changes are the latest bid by the bank to re-instill confidence among shareholders who have raised serious questions about the bank’s long term sustainability.
See our full analysis for Barclays
Submit a Post at Trefis Powered by Data and Interactive Charts | Understand What Drives a Stock at Trefis
Notes:- Bank of America to pay $2.43B in settlement, The Wall Street Journal, Sept 28 2012 [↩]
- Barclays Plans Shake-Up as Regulatory Pressure Grows, The Wall Street Journal, Oct 4 2012 [↩]
