U.S. Banking Weekly Notes: Goldman Sachs, U.S. Bancorp, Wells Fargo and Capital One

Bank shares had a rough week, a trend seen for the larger equity market as strong gains by the dollar coupled with an increase in crude oil prices dragged down prices across sectors. The losses were uniform across the banking sector, with most banks seeing a 3-4% reduction in share price for the week. Bank stocks also fell out of favor with investors towards the end of the week as Fed Chair Janet Yellen indicated that the benchmark interest rates will be hiked slowly over a long-drawn period to ensure that the country’s economic recovery is not negatively impacted. ^[1]

The KBW Bank Index was down over 3% over the week – under-performing the S&P 500 which lost 2.2% over the same period.

Goldman Sachs

Goldman Sachs (NYSE:GS) continues to face legal trouble from the ill-fated collateralized debt obligation (CDO) Abacus, as ACA Financial is pushing for a revival of the lawsuit it filed in 2011 by the New York state Court of Appeals. ^[2] The lawsuit has seen its share of twists, switching back and forth in favor of Goldman and ACA at each level of the state judicial system. The lawsuit represents a potential liability of $120 million for Goldman. Notably, Goldman paid $550 million to the SEC in 2010 to settle allegations that it misled investors with Abacus. ^[3]

• Trefis has a $189 price estimate for Goldman’s shares, translating into an $85 billion market cap. This is around the market price of between $187-193 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) is looking to cut as many as 1,000 jobs and shutter its home-lending servicing branch in Milwaukee over coming months. ^[4] The country’s largest originator and servicer of mortgages has seen a marked reduction in delinquencies and loan modifications over recent years thanks to the improving economic conditions – making these servicing roles redundant.

• 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 between $54-56 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

U.S. Bancorp

U.S. Bancorp (NYSE:USB) faces a lawsuit from the South Carolina-based insurer Companion Property & Casualty Insurance for failing its role as trustee for funds worth $176 million. ((Insurer Sues US Bancorp Over Asset Replacement, The Wall Street Journal, Mar 24 2015)) The insurer alleges that the country’s largest regional bank allowed the insurer’s funds to be replaced by illiquid and worthless assets by Alexander Chatfield Burns – the financier who is currently being investigated for siphoning off millions from several funds.

• Trefis has a $45 price estimate for U.S. Bancorp’s shares, translating into an $80 billion market cap. This is slightly above the market price of between $43-45 seen over the week.
• We estimate the company’s FY 2015 revenues to be around $21 billion for an earnings per share of $3.39, compared to a consensus of $3.27 according to Reuters

See our full analysis for U.S. Bancorp

Capital One

Capital One (NYSE:COF), along with 11 other regional banks, is lobbying the country’s financial regulators to get rid of the $50 billion asset threshold used to determine the systemically important financial institutions. ^[5] The coalition, which includes Citizens, SunTrust and American Express among others, argues that the arbitrary limit subjects the regional banks to higher capital requirements which will potentially hurt their competitiveness and long-term profitability.

• Trefis has a $89 price estimate for Capital One’s shares, translating into a $49 billion market cap. This is roughly 10% ahead of the market price of between $78-82 seen over the week.
• We estimate the company’s FY 2015 revenues to be around $23.5 billion for an earnings per share of $7.90. compared to a consensus of $7.67 according to Reuters

See our full analysis for Capital One

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1. Fed’s Janet Yellen Pitches Cautious Tack on Rate Increases, The Wall Street Journal, March 27 2015 [↩]
2. ACA Financial Asks Court to Revive Goldman Suit on Abacus, Bloomberg, Mar 26 2015 [↩]
3. Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO, SEC Press Releases, July 15 2010 [↩]
4. Wells Fargo to cut 1,000 jobs, shut Milwaukee home-lending office, Reuters, Mar 25 2015 [↩]
5. Regional Bank Coalition Launches to Support Risk-Based Financial Regulation, Regional Bank Coalition Press Releases, Mar 23 2015 [↩]