Financials Weekly Notes: BNY Mellon, Goldman And Barclays

The financial sector was quite upbeat over the beginning of the week with investors hoping that President Barack Obama would announce some concrete steps towards getting the country out of its sticky debt situation, as part of his State of the Union address Tuesday evening. Bank shares also received a considerable boost over trading Wednesday morning, following reports from the consumer credit company TransUnion, which showed that mortgage delinquency rates have fallen to a 4-year low with the figure for Q4 2012 being 14% below the level in Q4 2011. ^[1]

Investors were particularly enthusiastic about Bank of America’s (NYSE:BAC) shares after the report was out as the bank has been riddled with mortgage-related issues over the recent years. The bank’s shares reached its highest price since May 2011 Wednesday before signs that the two political parties will remain at loggerheads on policy decisions led the overall market lower for the rest of the week.

Below are some significant events pertaining to major banks that were witnessed over this week.

BNY Mellon

Early this week, the U.S. Tax Court decided against The Bank of New York Mellon Corporation (NYSE:BK), in the high-stakes lawsuit filed by the Internal Revenue Service (IRS) over the custodian bank’s alleged exploitation of tax provisions, more than a decade ago. The court took away the $900 million in tax benefits the bank had received as a result of a complex set of transactions on a $1.5 billion loan arranged by Barclays(NYSE:BCS) over 2001-2002 – stating that these transactions were purely aimed at evading taxes by abusing double-taxation treaties between countries.

Although BNY Mellon intends to appeal against this decision, it will have to set aside $850 million for now. This will lead to a loss for the bank in the first quarter.

You can read more about how the $850 million in legal reserves will impact BNY Mellon in our article BNY Mellon Loses $850 Million Tax Lawsuit Pushing Quarter Into The Red

See our full analysis for BNY Mellon’s stock

Goldman Sachs

Goldman Sachs (NYSE:GS) has kept itself quite busy over recent months, involved in making changes to its business model to accommodate the strict Volcker Rule which could be brought into law as early as this summer. And while in most cases the global investment bank has no option but to cut down on its operations in accordance with the limits imposed by the rule, there are a few instances in which the bank is thinking outside the box to come up with ways to continue generating revenues by going around the provisions laid down by the rule.

The bank’s work towards cutting down the size of its private-equity (PE) business and shuttering of various proprietary trading groups are some of its major acts towards complying with the Volcker Rule. ^{[2] [3]} At the same time, the bank’s decision to start-off a new credit fund structured as a business development company and to remodel its Multi-Strategy Investing (MSI) division, are some creative steps by the bank to keep its cash registers going.

You can continue reading about the bank’s strategies in our article, Goldman’s Volcker Rule Policy: Creative And Profitable Compliance.

See our full analysis for Goldman Sachs

Barclays

Barclays (NYSE:BCS) came out with its performance for the year 2012 Tuesday, and the numbers show that the U.K.-based banking group is still struggling to get its act together. The bank’s operations which are spread considerably in trouble-hit Europe, have been hit particularly hard with declining revenues and mounting provisions straining the bottom line. The bank also took considerable one-time charges related to its PPI redressals and the more recent interest-rate hedging products redressal.

The bank, however, did give investors a big reason to cheer with its announcement to cut annual costs by at least £1.7 billion ($2.7 billion) by 2015. The bank will slash 3,700 jobs over the year to achieve this target. Barclays also intends to continue strengthening its asset base, while boosting its dividend payout from 2014.

More details about Barclays 2012 performance is available here.

See our full analysis for Barclays

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1. Roundup: Mortgage delinquencies hit low; employers reduce hiring; more, Tribune-Review, Feb 13 2013 [↩]
2. Goldman Sachs Said to Close Fixed-Income Prop Group, Bloomberg, Feb 15 2011 [↩]
3. Goldman Readies Fund Business for ‘Volcker’, The Wall Street Journal, Feb 13 2013 [↩]