Financials Weekly Notes: Morgan Stanley, Citigroup, Credit Suisse And RBS

Starting the week on an uneventful note, bank shares saw a surge in value over trading on Thursday, September 18, when the Federal Reserve hinted at increasing interest rates in the near future given the steady improvement in key economic metrics. Investors grew optimistic about interest rates being normalized over the coming months and drove the equity markets higher, with the S&P 500 and Dow scaling all-time highs. Bank shares gained in particular, as improving interest rates will reduce the pressure on their net interest margins – allowing them to report higher interest-related revenues after nearly three years of shrinking net interest incomes. Also, a notable fall in jobless claims figures for the week played a role in boosting share prices. The KBW Bank Index gained around 3% over the week.

Below are some notable events pertaining to major banks that were witnessed over this week.

Morgan Stanley

Morgan Stanley’s (NYSE:MS) infrastructure investing arm, Morgan Stanley Infrastructure, has acquired a 47.5% stake in the Eureka Hunter natural gas gathering business to become a co-owner along with Magnum Hunter Resources. ^[1] This is the second major step by the investment bank to increase its presence in the physical commodities business after it announced plans to build and operate a compressed natural gas (CNG) export facility late last month. ^[2] Morgan Stanley and Goldman Sachs are the only two banks in the country that are permitted to own and run infrastructure for the manufacture, storage and operation of physical commodities – although there has been considerable pressure on banks from the government to cut down on their physical commodities operations.

• Trefis has a $38 price estimate for Morgan Stanley’s shares, translating into a $75 billion market cap. This is about 5% ahead of the market price between $35-36 seen over the week.
• We estimate the company’s FY 2014 revenues to be around $34.5 billion for an earnings per share of $2.36, compared to a consensus of $2.44 according to Reuters

See our full analysis for Morgan Stanley

Citigroup

Citigroup (NYSE:C) is likely to file an IPO for its consumer lending unit OneMain Financial over coming weeks (see Citigroup Likely To File For IPO For OneMain Financial Soon). The globally diversified banking group is pursuing a dual-track process to ensure that the non-core asset is disposed by Q1 2015, with plans for the IPO moving ahead along with talks with potential suitors for an outright sale. The unit is responsible of about $9 billion of the held-for-sale assets grouped under Citi Holdings.

• Trefis has a $58 price estimate for Citigroup’s shares, translating into a $176 billion market cap. This is about 10% ahead of the market price between $52-54 seen over the week.
• We estimate the company’s FY 2014 revenues to be around $78.6 billion

See our full analysis for Citigroup

Credit Suisse

Credit Suisse (NYSE:CS) has come under scrutiny from the Federal Reserve over its underwriting and sale of leveraged loans. ^[3] The regulator demanded the second largest Swiss bank to stop making risky high-interest-rate loans – something that is prohibited under guidance issued last March by the Fed, OCC and FDIC.

• Trefis has a $33 price estimate for Credit Suisse’s shares, translating into a $53 billion market cap. This is about 20% ahead of the market price between $27-28 seen over the week.
• We estimate the company’s FY 2014 revenues to be $30 billion

See our full analysis for Credit Suisse

RBS

RBS (NYSE:RBS) has almost completely done away with a unit that oversaw debt capital markets in Europe, Middle East and Africa – marking the latest step by the global banking group to comply with the British government’s directive to focus on its retail and business banking operations in the U.K. ^[4] The bank is believed to have cut 10 jobs related to loans, bonds and rates primarily in Russia as well as central and eastern Europe.

RBS also had an eventful week owing to Scotland’s referendum for independence. Reports predicting a “No” vote over the beginning of the week, followed by a formal announcement that the U.K. will remain as a united entity on Friday, helped RBS shares soar by more than 4% over the week. The bank had formally announced its decision to shift its headquarters to London in the event Scotland secures its independence from the U.K. on September 11. ^[5]

• Trefis has a $13 price estimate for RBS’s shares, translating into a $41 billion market cap. This is roughly 10% ahead of the market price of around $11-12 seen over the week.
• We estimate the company’s FY 2014 revenues to be around $32.1 billion for an earnings per share of $0.53, compared to a consensus of $0.64 according to Reuters

See our full analysis for RBS

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1. Morgan Stanley takes stake in Magnum Hunter natgas pipelines, Reuters, Sept 16 2014 [↩]
2. Exclusive: Morgan Stanley plans natural gas export plant in new commodities foray, Reuters, Aug 29 2014 [↩]
3. Credit Suisse Loans Draw Fed Scrutiny, The Wall Street Journal, Sept 16 2014 [↩]
4. RBS Said to Dismiss Most of Team Overseeing Central Europe Debt, Bloomberg, Sept 16 2014 [↩]
5. Contingency planning for Scottish Independence Referendum, RBS Press Releases, Sept 11 2014 [↩]