Financials Weekly Notes: BofA, Credit Suisse, Citigroup

Bank share went back to tracking events in Europe this week with European banks showing the largest losses and gains to their share value at the end of each trading day over the week. This was unlike the previous week, when share price movements were almost completely governed by the banks’ earnings announcements.

Banks started the week on a poor note when failing Spanish regional governments triggered fears of the country ending up asking for a full sovereign bailout. European banks, notably Deutsche Bank (NYSE:DB) and Barclays (NYSE:BCS) bore the brunt of this news the most owing to their considerable exposure to Spain. Things changed for the better towards the middle of the week after a positive U.S. job report and a statement by ECB chief Mario Draghi that the central bank will do everything needed to preserve the euro boosted investor sentiments.

There were important events to report for Bank of America (NYSE:BAC), Credit Suisse (NYSE:CS) and Citigroup (NYSE:C) this week.

Bank of America

Bank of America got one step closer to clearing the $8.5 billion settlement it reached with several investors in Q2 2011 over mortgage-backed securities wrongly sold by Countrywide pre-2008. Walnut Place, one of the major investors opposed to the settlement, has decided to drop out of the lawsuit challenging it. ^[1] This leaves AIG (NYSE:AIG) as the last big investor opposed to the $8.5 billion settlement initially agreed upon by Bank of America with BlackRock (NYSE:BLK), Metlife (NYSE:MET) and Pacific Investment Management.

Bank of America inherited a huge amount of legal liabilities when it acquired Countrywide at the peak of the 2008 economic crisis. The $8.5 billion settlement was the single largest one and addresses a major chunk of the grievances associated with Countrywide.

See our full analysis for Bank of America

Credit Suisse

Credit Suisse came out with an all-round good performance for the second quarter of the year – in-line with an announcement it had made a fortnight earlier. ^[2] The second largest Swiss bank achieved profits across all its business segments, with it cornerstone wealth management business reporting one of its best quarterly numbers in recent years.

Additionally, Credit Suisse announced its decision to raise $15.6 billion in capital over coming quarters. The bank has been under fire from investors and Swiss regulators who believe that the bank is insufficiently capitalized given the stricter regulations in the pipeline. The bank also declared that it achieved its CHF 2 billion cost savings plan announced late last year, and will not target an additional CHF 1 billion in expense cuts by the end of next year.

See our full analysis for Credit Suisse

Citigroup

Citigroup is staring at a multi-billion write-off linked to its 49% stake in Smith Barney next quarter. ^[3] The global financial group which co-owns the brokerage firm with Morgan Stanley (NYSE:MS) announced recently that the latter is looking to buy an additional 14% stake in Smith Barney at a significantly lower price that what it is worth on Citigroup’s books. If the deal goes through at the quoted price, Citigroup will need to revalue its stake based on the deal value – resulting in a loss of up to $3 billion.

See our full analysis for Citigroup

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1. Walnut Place Seeks To Withdraw From BofA Case, Bloomberg, Jul 23 2012 [↩]
2. Q2 2012 Earnings Press Release, Credit Suisse Press Releases [↩]
3. Citigroup Sees Charge on Smith Barney Valuation, Bloomberg Businessweek, Jul 19 2012 [↩]