Financials Weekly Notes: BNY Mellon, Morgan Stanley and Deutsche Bank

-4.11%
Downside
54.94
Market
52.68
Trefis
BK: Bank of New York Mellon logo
BK
Bank of New York Mellon

It was a largely positive week for bank shares despite a dodgy start, as investor concerns of a possible delay in benchmark interest rates by the Fed took a backseat. Last week, investors reacted negatively to the minutes of the Federal Open Market Committee (FOMC) meeting, but confidence levels improved early this week after Federal Reserve Chair Janet Yellen testified before the Senate Banking Committee. [1] Share prices of the country’s largest banks gained in particular on Tuesday after JPMorgan announced that trading activity has been strong over the first two months of 2015. [2] The KBW Bank Index remained at the same level this Thursday as it was at the close of last Friday – mirroring the change seen in the S&P 500 over the same period.

Bank of New York Mellon

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BNY Mellon (NYSE:BK) is reportedly engaged in talks with the U.S. Justice Department as well as the New York attorney general to settle the foreign exchange-related lawsuits against it. [3] The world’s largest custody bank drew considerable criticism in late 2011 when it was revealed that the bank claimed that it was providing its clients with the best available exchange rates over 2001-2010, while actually providing them with some of the worst rates. Although BNY Mellon faces several lawsuits for its forex misgivings, tho ones filed by the DoJ and the N.Y. attorney general are by far the biggest – allowing the bank to put the contentious issue behind it for good once it settles with the two regulators.

  • 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

Morgan Stanley

In a move that substantially resolves all its legacy mortgage-related issues, Morgan Stanley (NYSE:MS) reached a $2.6 billion settlement with the Department of Justice earlier this week. [4] The investment banking giant was under investigation by the DoJ for misrepresenting the quality of loans it packaged as mortgage-backed securities in the run-up to the economic downturn of 2008. Morgan Stanley restated its Q4 2014 results to include a $2.8 billion increase in legal provisions for the period. The extra $200 million set aside should cover settlement costs for the remaining legacy lawsuits.

  • 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 between $36-37 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

Deutsche Bank

Deutsche Bank (NYSE:DB) recently signed a ten-year, multi-billion dollar agreement with Hewlett-Packard (HP) to outsource a bulk of its IT infrastructure needs. [5] The deal largely affects the German banking giant’s wholesale banking IT infrastructure, and will help it significantly reduce IT costs while being able to launch new products and services more quickly. [6] The positive impact of the deal on Deutsche Bank’s operating margins is likely to begin to show once the implementation is completed.

  • Trefis has a $37 price estimate for Deutsche Bank’s shares, translating into a $60 billion market cap. This is about 15% ahead of the market price between $32-33 seen over the week.
  • We estimate the company’s FY 2015 revenues to be $44.5 billion for an earnings per share of $3.79, compared to a consensus of $3.15 according to Reuters

See our full analysis for Deutsche Bank

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Notes:
  1. Minutes of the Federal Open Market Committee, Federal Reserve Website, Feb 18 2015 []
  2. JPMorgan Sees Trading Revenue Gains as Year Starts ‘Very Strong’, Bloomberg, Feb 24 2015 []
  3. BNY Mellon in forex settlement talks with U.S., N.Y., Reuters, Feb 24 2015 []
  4. Morgan Stanley to Pay $2.6 Billion to Settle Mortgage Cases, The Wall Street Journal, Feb 25 2015 []
  5. Deutsche Bank and Hewlett-Packard sign agreement, Deutsche Bank Press Releases, Feb 25 2015 []
  6. Deutsche Bank signs multibillion-dollar IT deal with HP, Reuters, Feb 25 2015 []