U.S. Banking Weekly Notes: BofA, BNY Mellon, Citigroup and Morgan Stanley

Bank shares saw quite some movement last week, as the earnings season among banks kicked off with six of the country’s largest banks reporting their Q1 performance figures over the period. The emerging trends gave investors a good idea of what to expect from subsequent earnings announcements from smaller banks – especially since there appeared to be an overall weakness in profitability for the traditional loans-and-deposits business. At the same time, the better-than-expected revenues churned out by debt trading desks helped the share prices of all banks with a sizable share of the industry. Bank shares took a tumble over trading on Friday, April 17, as fears of Greece defaulting on its debt payment weighed on share prices across sectors that day.

The KBW Bank Index as well as the S&P 500 ended the week at roughly the same level they were at the end of the previous week.

Bank of America

Bank of America (NYSE:BAC) has settled the lawsuit against it by investors alleging that the banking giant colluded with rivals to manipulate foreign exchange rates. ^[1] The country’s second largest bank was named in the 2013 lawsuit along with 11 other global banks for rigging forex spot rates. While financial details of the settlement were not disclosed, the bank is likely to have paid around $100 million to put this issue behind it – given a settlement figure of $99.5 million by JPMorgan and $135 million by UBS  for the same issue earlier this year.

• Trefis has an $18 price estimate for Bank of America’s shares, translating into a $190 billion market cap. This is roughly 15% ahead of the market price of around $15.50 seen over the week.
• We estimate the company’s FY 2015 revenues to be just under $90 billion for an earnings per share of $1.55, compared to a consensus of $1.39, according to Reuters.

See our full analysis for Bank of America’s stock

Citigroup

Citigroup (NYSE:C) is reportedly looking for a buyer for its retail foreign exchange brokerage unit, CitiFX Pro. ^[2] The globally diversified banking group, which is the single largest player in the forex industry, has been looking for ways to streamline its currency business over recent months. CitiFX Pro provides a currency trading platform for professional individual traders and small institutions, and the proposed sale appears to be a step by the bank towards cutting costs in a segment that has not been very profitable for it in the recent past.

• Trefis has a $56 price estimate for Citigroup’s shares, translating into a $170 billion market cap. This is about 5% ahead of the market price between $53-54 seen over the week.
• We estimate the company’s FY 2015 revenues to be around $79.2 billion for an earnings per share of $5.24, compared to a consensus of $5.35, according to Reuters.

See our full analysis for Citigroup

Morgan Stanley

Morgan Stanley (NYSE:MS) is reportedly closing in on a deal to sell its oil merchandising unit to Castleton for as mush as $1 billion. ^[3] This figure is almost three times what the bank would have pocketed if its original deal with Rosneft in December 2013 had not been blocked by federal regulators (see What’s In Store For Morgan Stanley’s Oil Merchandising Unit After Failed Rosneft Deal?). Morgan Stanley announced plans of disposing the business in late 2013 due to increased pressure on banks to exit the physical commodities business. The unit includes oil terminal storage agreements, inventory, agreements pertaining to physical oil, oil-related equity investments and freight shipping contracts.

• Trefis has a $38 price estimate for Morgan Stanley’s shares, translating into a $74 billion market cap. This is slightly ahead of the market price around $37 seen over the week.
• We estimate the company’s FY 2015 revenues to be $36 billion for earnings per share of $2.84, compared to a consensus of $2.91, according to Reuters.

See our full analysis for Morgan Stanley

Bank of New York Mellon

BNY Mellon (NYSE:BK) was fined £126 million ($190 million) by the U.K.’s Financial Conduct Authority (FCA) for failing to keep its client assets separate from its own proprietary investments. ^[4] The fine, which is the largest imposed by the British financial regulator over client money failings, targets issues with BNY Mellon’s workings over the period from 2007 to 2013. The fine imposed by the FCA on the largest custody bank follows similar ones for competitors Barclays and JPMorgan over recent years.

• Trefis has a $40 price estimate for BNY Mellon’s shares, translating into a $44 billion market cap. This is roughly around the market price seen over the week.
• We estimate the company’s FY 2015 revenues to be around $15.8 billion for an earnings per share of $2.49, compared to a consensus of $2.60, according to Reuters.

See our full analysis for BNY Mellon

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1. Bank of America settles currency-rigging lawsuit, Reuters, Apr 16 2015 [↩]
2. Citi seeking to sell retail FX arm, Reuters, Apr 14 2015 [↩]
3. Castleton Emerges as Leading Bidder for Morgan Stanley Oil Business, The Wall Street Journal, Apr 14 2015 [↩]
4. UK regulator hits BNY Mellon with record £126m fine, Financial Times, Apr 15 2015 [↩]