U.S. Banking Weekly Notes: BNY Mellon, Goldman Sachs and Wells Fargo

-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 uneventful week for bank shares, with the share price for most banks remaining unchanged over the period. The week started on a weak note for companies across sectors – and for the financial industry in particular – as the worse-than-expected jobs data released on Friday, April 3, hurt investor sentiments. [1] With a possible delay in the Fed’s plans to hike benchmark interest rates from the current record low levels, this news hit bank shares the hardest. After all, banks have seen considerable pressure on their top lines over recent years from declining net interest margin (NIM) figures, and a delay would only mean that they will have to wait longer to see any improvement. But growing optimism about strong earnings figures from companies buoyed share prices over the rest of the week.

The KBW Bank Index ended the week at roughly the same level it was at the end of the previous week – underperforming the S&P 500 which gained roughly 1.7% over the period.

Bank of New York Mellon

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BNY Mellon (NYSE:BK) remains under pressure from Marcato Capital Management to make major changes to its top management team. [2] Marcato, which is one of the custody banking leader’s largest investors, called for the ouster of BNY Mellon’s CEO Gerald Hassell early last month and has been actively pursuing this cause since then. [3] The fund claims that BNY Mellon has been performing below par over recent years and is bogged down considerably by an over-sized employee base. Marcato claims that the bank has roughly 10,000 more employees than it needs (representing 20% of the total headcount of 50,300) based on comparisons made with several competitors.

  • 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

Goldman Sachs

Goldman Sachs (NYSE:GS) has acquired all of the Canadian government’s stake in General Motors. [4] The investment bank acquired 73.4 million of the auto giant’s shares in an unregistered block trade for a total of roughly $2.7 billion. Canada acquired the GM stake in 2009 as a part of the car maker’s bailout package, and the recently announced move follows a sale of about 30 million shares in late 2013. [5]

  • Trefis has a $189 price estimate for Goldman’s shares, translating into an $85 billion market cap. This is below the market price of between $190-196 seen over the week.
  • We estimate the company’s FY 2015 revenues to be around $36 billion for an earnings per share of $17.77, compared to a consensus of $17.29 according to Reuters

See our full analysis for Goldman Sachs

Wells Fargo

Wells Fargo (NYSE:WFC) and Blackstone are acquiring substantially all the assets of GE Capital Real Estate in a deal that is worth nearly $26.5 billion. [6] While details of the agreement have not been made public, most of the real estate assets will be transferred to funds managed by Blackstone with Wells Fargo adding a sizable chunk of performing commercial real estate (CRE) loans to its portfolio. Wells Fargo has been on the lookout for lucrative deals in the CRE industry over recent years – last acquiring a portfolio of assets worth almost $6 billion in the U.K. in July 2013. [7] Bank of America provided financial advice to GE as a part of the recently announced deal.

  • Trefis has a $57 price estimate for Wells Fargo’s shares, translating into a $297 billion market cap. This is about 5% above the market price of around $54 seen over the week.
  • We estimate the company’s FY 2015 revenues to be just over $90 billion for an earnings per share of $4.44, compared to a consensus of $4.21 according to Reuters.

See our full analysis for Wells Fargo’s stock

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Notes:
  1. Payroll employment increases by 126,000 in March; unemployment rate unchanged at 5.5%, U.S. Bureau of Labor Statistics []
  2. Presentation, Marcato, Apr 7 2015 []
  3. Letter to Shareholders, Marcato, Mar 10 2015 []
  4. Canada agrees to sell remaining General Motors stake to Goldman Sachs, Reuters, Apr 6 2015 []
  5. Canada Sells Remaining Stake in General Motors, The Wall Street Journal, Apr 6 2015 []
  6. GE To Create Simpler, More Valuable Industrial Company By Selling Most GE Capital Assets, GE Press Releases, Apr 10 2015 []
  7. GE Close to Real Estate Sale to Blackstone, Wells Fargo, Bloomberg, Apr 9 2015 []