Financials Weekly Notes: Wells Fargo, Goldman Sachs and Deutsche Bank

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Deutsche Bank

Over the last few weeks, a string of worse-than-expected economic indicators across the globe have battered investor sentiment by raising doubts about the pace of economic growth among key developed and developing nations. Reacting to these signs as well as reports highlighting an impending correction in the equity market, investors have dumped shares frantically since late September – with this trend being quite pronounced over this week. Having reached an all-time high of 2,019 less than a month ago, the S&P 500 index fell to an intra-day low of 1,820 on Wednesday, October 15, before investors cautiously bought into the dip to lead the equity market slightly higher.

Bank shares have fared worse than the market at large over the week, with the KBW Bank index tanking around 3.5% through Thursday. Most of this decline came on Wednesday, when the Commerce Department reported that retail sales in September fell 0.3% and the Federal Reserve Bank of New York reported that the monthly manufacturing index shrunk 6.2%. [1] The slowing economic indicators dashed investor hopes of an early revival of benchmark interest rates by the Fed, and as banks were expected to gain the most from an improved interest rate environment, this conclusion triggered a sell-off in bank shares.

The week saw eight of the country’s largest banking groups report their performance figures for the third quarter of the year. We have discussed the results for each of these banks in individual articles throughout the week. Below you will find some other notable events pertaining to major banks that happened last week.

Relevant Articles
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Wells Fargo

U.S. regulators are taking a tough look at auto lending practices by the country’s biggest banks. [2] The Consumer Financial Protection Bureau (CPFB) and the Department of Justice (DoJ) have been requesting for detailed information from major players in the auto lending industry to gauge the level of subprime lending in the industry. The increased regulatory oversight affects Wells Fargo (NYSE:WFC) the most, as it is the largest U.S. auto lender, followed by Capital One (NYSE:COF) and JPMorgan Chase (NYSE:JPM).

  • Trefis has an $54 price estimate for Wells Fargo’s shares, translating into a $242 billion market cap. This is about 10% ahead of the market price of between $48-50 seen over the week.
  • We estimate the company’s FY 2014 revenues to be just over $84 billion for an earnings per share of $4.12, compared to a consensus of $4.11 according to Reuters.

See our full analysis for Wells Fargo’s stock

Goldman Sachs

Goldman Sachs (NYSE:GS) is reportedly looking to acquire IndexIQ, a New York-based exchange traded fund (ETF) provider. [3] The investment bank has been keen on grabbing a sizable piece of the rapidly growing ETF market and also filed a request to launch its own series of active ETFs with the SEC last month (see Goldman Details Plans To Foray Into Active ETF Market). The acquisition of IndexIQ could help Goldman offer ETFs by the end of this year.

  • Trefis has a $188 price estimate for Goldman’s shares, translating into an $85 billion market cap. This is about 5% higher than the market price of between $173-179 seen over the week.
  • We estimate the company’s FY 2014 revenues to be $35 billion for an earnings per share of $17.24, compared to a consensus of $16.70 according to Reuters.

See our full analysis for Goldman Sachs

Deutsche Bank

Deutsche Bank (NYSE:DB) could be forced to increase its legal reserves by as much as 30% to cover the costs of some major settlements over coming months. [4] The German banking giant may have to set aside €7 billion ($8.8 billion) to pay legal expenses stemming from ongoing investigations into its role in manipulating benchmark interest rates and forex rates, and also for misleading investors about the quality of mortgage-backed securities it originated. The bank is likely to reveal a substantial legal charge as a part of its Q3 2014 results which are slated for release on October 29.

  • Trefis has a $43 price estimate for Deutsche Bank’s shares, translating into a $60 billion market cap. This is almost 40% ahead of the market price between $31-32 seen over the week – something we largely attribute to the sharp selling in the bank’s shares over recent weeks following concerns about huge settlement costs for the large number of  high-profile lawsuits against the bank.

See our full analysis for Deutsche Bank

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Notes:
  1. Advance Monthly Sales for Retail and Food Services, Department of Commerce Press Releases, Oct 15 2014 []
  2. U.S. regulators press banks for more on auto loan exposure to assess risks, Reuters, Oct 12 2014 []
  3. Goldman Sachs in talks to acquire ETF provider IndexIQ, Reuters, Oct 16 2014 []
  4. Deutsche Bank Legal Costs May Hit $8.8 Billion: Spiegel, Bloomberg, Oct 12 2014 []