It was an overall bad week for investing in banks with share prices of all major banks closing lower on most of the days. With there being no significant event in Europe this week, the stock market was largely driven by the earnings season that kicked-off this week. Besides that, the bank stocks have also seen a decline in value from more regulators around the globe investigating the involvement of the largest global banks in the LIBOR fixing scandal.
JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) were the first among U.S. banks to reveal their performance for the second quarter of the year this Friday. There were also important events to report for Deutsche Bank (NYSE:DB) and UBS (NYSE:UBS) this week.
JPMorgan
JPMorgan came out with a better than expected income statement for this quarter with the diversified banking group reporting a net income of $5 billion from revenues of $22.9 billion. [1] It also pegged losses from the failed hedging strategy which its London office entered into at $4.4 billion. This is likely to provide some relief to investors who expected a loss of up to $9 billion.
The reported numbers do involve some nifty accounting adjustments though, including a restatement of the Q1 2012 numbers to reduce income by almost half a billion which looks like an attempt to push a chunk of the hedging losses to the previous quarter. Besides this, the income statement includes a $2.1 billion profit from a reduction in loan reserves and a $800 million benefit from the revaluation of its own debt – both figures being pre-tax.
See our full analysis for JPMorgan
Wells Fargo
Wells Fargo continues its profitable run with the largest U.S. bank in terms of market capitalization churning out record profits for Q2 2012. [2] The bank has been regularly pushing the envelope on its revenue and income figures, relying on its balanced business model and with help from the improving mortgage market. While revenues were essentially flat for the U.S.-focused bank, a significant reduction in expenses gave the bottom-line a boost.
See our full analysis for Wells Fargo
Deutsche Bank
Shares of Deutsche Bank took a significant hit over this week following news that that the largest German bank is under “special investigation” from the German regulator BaFin over its alleged involvement in manipulating the LIBOR. This is in addition to the American and British regulators who are already investigating the bank over the same charges. Investors have not been taking news about the LIBOR scandal lightly the last two weeks, after Barclays (NYSE:BCS) was fined a $450 million fine for its role in artificially lowering the LIBOR value.
Read more about this and its implication for Deutsche Bank here: Deutsche Bank Shares Drop On Reports of LIBOR Investigation.
See our full analysis for Deutsche Bank
UBS
Tax evasion woes for Swiss banks continue to drag on, with France stepping up action against the largest Swiss bank over money laundering and tax evasion assistance charges. UBS and rival Credit Suisse (NYSE:CS) have under attack from the U.S., the U.K. and Germany over recent years over similar charges.
Swiss banks have enjoyed a strong global presence on the back of the privacy they offer their clients. But the ability of the countries mentioned above to arm-twist the Swiss government into complying with their investigations can potentially cost the Swiss banks millions in customer assets – as it undermines their coveted privacy offering.
To know more about this, read France Goes After UBS Over Tax Evasion Charges.
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Notes:- 2Q12 Earnings Press Release, JPMorgan Investor Relations, Jul 13 2012 [↩]
- 2Q12 Earnings, Wells Fargo Investor Relations, Jul 13 2012 [↩]
