Financial Weekly Notes: Goldman Sachs, Morgan Stanley & Barclays

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It was an overall positive week in the equity markets last week, with investors reacting positively to strong economic data released early in the week. Investor sentiments were already running high since the Federal Reserve announced plans to taper its asset purchase program previously, which indicates an optimistic outlook for the economy. And while an upward revision in the Reuters/University of Michigan consumer sentiment index for December, as well as better-than-expected personal consumption figures released by the Department of Commerce for November, consolidated the outlook towards the beginning of the week, a marked reduction in U.S. jobless figures towards the end of the week came as a welcome surprise later in the week. [1]

The improvement in bank share prices for the week were largely in-line with those for companies across sectors. Quite notably, European banks outperformed their U.S. peers thanks to the added effect of an EU statement late last week claiming that the biggest European banks have on average more surplus cash buffers than what is mandated by Basel III regulatory requirements. [2]

Coming to the annual performance of the banking sector, bank shares are all set to record another year of strong growth in 2013 – comfortably outperforming key equity market indices. To put things in perspective, the KBW Bank Index has grown almost 35% over this year, compared to a 30% improvement in the S&P 500 and a 25% growth in the Dow Jones Industrial Average.

Below are some significant events pertaining to major banks that were witnessed last week.

Goldman Sachs

Goldman Sachs’ private-equity arm may end up shouldering a sizable part of a billion dollar plus settlement figure in the collusion lawsuit filed in 2007 against it and its competitors Bain Capital,KKR,  Silver Lake Partners, Blackstone, Carlyle Group, Thomas H. Lee Partners and TPG Capital by shareholders in eight companies that were bought by these PE giants. [3]  The shareholders allege that the PE firms wrongfully pocketed billions by following an implicit agreement to stay away from each other’s acquisition deals between 2004 and 2008. This allegedly allowed them to acquire the companies well below their true value.

The eight private-equity deals in question saw stakes worth $170 billion changing hands – making a multi-billion dollar settlement by the PE firms a likely outcome.

See our full analysis for Goldman Sachs

Morgan Stanley

Morgan Stanley announced plans to sell off two of its business units this week: its mutual fund business in India and its global oil merchandising unit. While the exit from the Indian mutual fund industry is a direct result of the diminishing returns in the extremely fragmented market, plans to dispose of the oil merchandising business can no doubt be traced back to the growing scrutiny by regulators on banks’ physical commodities businesses.

Morgan Stanley will be selling its 8 mutual funds in India with ₹32.9 billion ($530 million) in assets under management to HDFC Asset Management – India’s largest mutual fund provider. ((Morgan Stanley to sell India mutual funds assets to HDFC, Reuters, 23 Dec 2013)) As for the oil merchandising business, the investment bank has inked a deal with Rosneft to sell its oil terminal storage agreements, inventory, agreements pertaining to physical oil, oil-related equity investments and freight shipping contracts. ((Morgan Stanley to Sell Global Oil Merchanting Business to Rosneft, Morgan Stanley Press Releases, Dec 20 2013))

See our full analysis for Morgan Stanley’s stock

Barclays

Barclays was handed down a fine of $3.75 million by FINRA (Financial Industry Regulatory Authority) earlier this week for failing to maintain proper records related to trade orders, accounts as well as emails and instant messages. [4] The bank neither accepted nor denied wrongdoings on its part, and claims that its current records comply with all regulatory requirements.

See our full analysis for Barclays

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Notes:
  1. U.S. jobless claims fall, holiday retail sales rise, Reuters, Dec 26 2013 []
  2. EU banks watchdog says lenders ahead of liquidity rule, Reuters, Dec 20 2013 []
  3. PE firms may pay more than $1B in collusion case, New York Post, Dec 26 2013 []
  4. US regulator fines Barclays over faulty record keeping, Financial Times, Dec 26 2013 []
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