Financials Weekly Notes: BNY Mellon, Goldman, Morgan Stanley and Wells Fargo

Bank shares witnessed gains in prices which were in line with the larger equity market for Christmas week, as both the S&P 500 and Dow Jones Industrial Average (DJIA) extended their record-breaking run over the week. Investors began the week on an optimistic note, with the Federal Reserve easing concerns of a rapid increase in interest rates last week by committing to “be patient in beginning to normalize the stance of monetary policy,” and with a string of economic indicators pointing to healthy growth in the U.S. economy. ^[1] Reports that the country’s economy grew by 5% for the third quarter of the year – making it the best quarterly growth rate in eleven years – drove the S&P 500 and Dow Jones indices to their highest-ever figures on Tuesday, December 23. ^[2] While the market edged higher over the half-day trading on Christmas Eve, the gains reversed over the last five minutes of trading thanks to a sell-off triggered by investors looking to book profits.

The KBW Bank Index gained 1.5% over the first two days of the week before decreasing slightly on Wednesday.

Bank of New York Mellon

BNY Mellon (NYSE:BK) caught a significant break in its long-drawn legal battle with several institutional investors over mortgage-backed securities (MBSs) originated by Countrywide, with a U.S. appeals court dismissing claims from 25 of 26 trusts named in the lawsuit. ^[3] The investors claimed in the lawsuit that BNY Mellon failed in its responsibilities as a trustee to the 26 mortgage securitization trusts that lost billions in the wake of the economic downturn. The New York appeals court has dismissed the investors’ claims on all but one Delaware-based trust.

• Trefis has a $39 price estimate for BNY Mellon’s shares, translating into a $44 billion market cap. This is about 5% below the market price of around $41 seen over the week.
• We estimate the company’s FY 2014 revenues to be around $15 billion for an earnings per share of $2.42, compared to a consensus of $2.40 according to Reuters

See our full analysis for BNY Mellon

Goldman Sachs

Goldman Sachs (NYSE:GS) finalized the sale of its metals warehousing business to Swiss private equity firm Reuben Brothers earlier this week. ^[4] The investment banking giant had been under considerable pressure from regulators to sell Metro International after it was alleged last year that the bank was manipulating the prices of commodities by creating an artificial shortage (see Regulator Pressure Causing Goldman, Morgan Stanley To Scale Back Physical Commodities Businesses). The sale comes within months of rival JPMorgan (NYSE:JPM) inking a similar deal to sell its metal warehousing business to Mercuria. ^[5]

• Trefis has a $188 price estimate for Goldman’s shares, translating into an $85 billion market cap. This is about 5% below the market price of between $193-196 seen over the week.
• We estimate the company’s FY 2014 revenues to be around $35.2 billion for an earnings per share of $17.24, compared to a consensus of $17.21 according to Reuters

See our full analysis for Goldman Sachs

Morgan Stanley

Morgan Stanley (NYSE:MS) is now working on options for its global oil merchandising unit after the investment bank’s deal to sell the business to Russian state-controlled oil giant Rosneft fell through (see What’s In Store For Morgan Stanley’s Oil Merchandising Unit After Failed Rosneft Deal?). The deal, announced in December 2013, had a one-year deadline for obtaining all necessary regulatory clearances, and the series of sanctions imposed by the U.S. on Russia in the wake of the crisis in Ukraine sealed the fate of the deal.

• Trefis has a $38 price estimate for Morgan Stanley’s shares, translating into a $74.5 billion market cap. This is in-line with the market price between $38-39 seen over the week.
• We estimate the company’s FY 2014 revenues to be around $35 billion for an earnings per share of $2.89, compared to a consensus of $2.45 according to Reuters

See our full analysis for Morgan Stanley

Wells Fargo

Wells Fargo (NYSE:WFC) has been sued by the National Credit Union Administration Board (NCUAB) for failing its duties as trustee for mortgage-backed securities (MBSs) with an original face value of $2.4 billion that sustained heavy losses during the economic downturn of 2008. ^[6] The NCUAB – a regulator that oversees federal credit unions – is suing the banking giant on behalf of five credit unions it liquidated in the wake of the crisis. Notably, the NCUAB also filed similar lawsuits against U.S. Bancorp (NYSE:USB) and Bank of America (NYSE:BAC) earlier this month over MBS worth $5.8 billion. ((BofA Sued by Credit Union Regulator for MBS Oversight, Bloomberg, Dec 17 2014))

• Trefis has a $54 price estimate for Wells Fargo’s shares, translating into a $242 billion market cap. This is slightly below the market price of around $55 seen over the week.
• We estimate the company’s FY 2014 revenues to be just over $84 billion for an earnings per share of $4.12, compared to a consensus of $4.10 according to Reuters.

See our full analysis for Wells Fargo’s stock

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1. Federal Reserve issues FOMC statement, Federal Reserve Website, Dec 17 2014 [↩]
2. Third-quarter U.S. economic growth strongest in 11 years, Reuters, Dec 23 2014 [↩]
3. U.S. court narrows mortgage lawsuit against Bank of NY Mellon, Reuters, Dec 23 2014 [↩]
4. Goldman move caps Reubens’ metal ambitions, Financial Times, Dec 23 2014 [↩]
5. J.P. Morgan Completes Sales of Physical Commodities Assets, JPMorgan Press Releases, Oct 3 2014 [↩]
6. Wells Fargo Sued by Credit Union Regulator Over Trustee Role, Bloomberg, Dec 23 2014 [↩]