Financials Weekly Notes: Goldman Sachs, State Street, JPMorgan And RBS

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State Street

Bank shares had a rather eventful week, with share prices first witnessing a marked decline over the first couple of days only to recover their lost value by the end of the week. The equity market started the week on a soft note due to expectations of a price correction from its current record highs, and when Federal Reserve Board Governor Daniel Tarullo hinted at stricter capital requirements for “too big to fail” banks, their share prices took a hit on Tuesday, September 9 (see Goldman, Morgan Stanley Likely To Face Steeper Capital Requirements). As the Fed is reportedly mulling a heavier surcharge on banks that rely heavily on short-term debt for their day-to-day operations, Morgan Stanley (NYSE:MS) was hit the hardest, with its shares falling 2.4% over trading on the day. An unexpected increase in joblessness figures for the previous week and concerns about economic growth in China only made things worse.

But the shares bounced back the following day, partly because the impact of possible Fed action regarding capital ratios on the banks was overestimated and partly from growing optimism among investors about the Federal Reserve’s plan meeting to be held next week. Investors were also upbeat thanks to reports estimating an increase in overall profits for U.S. banks in Q3. The KBW Bank Index saw a quick turnaround from the 1% slump on September 9, to end the week higher than the figure at the end of last week.

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

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Goldman Sachs

Goldman Sachs (NYSE:GS) has entered into a partnership with the New York State Common Retirement Fund to advise it on the roughly $100 billion in equity investments the public-employee pension fund holds. [1] The fund, which has over $180 billion in total assets under management, wants the investment bank to help it invest $2 billion in global equity and also advise it on its existing equity portfolio. While the terms of this partnership have not been revealed, Goldman is expected to pick 7-8 funds for the $2 billion investment, with none of them being managed by the bank itself.

  • Trefis has a $185 price estimate for Goldman’s shares, translating into an $85 billion market cap. This is slightly ahead of the market price between $177-183 seen over the week.
  • We estimate the company’s FY 2014 revenues to be around $35.5 billion for an earnings per share of $14.53, compared to a consensus of $16.55 according to Reuters

See our full analysis for Goldman Sachs

State Street

The Securities and Exchange Commission (SEC) is reportedly working on more detailed disclosure rules for asset managers in a bid to increase oversight of mutual funds, hedge funds and other alternative investment funds. [2] The rules grant regulators access to more data about the portfolio holdings of the asset managers and will include stress tests on important funds to gauge the impact of an economic downturn on them, while also imposing restrictions on the use of derivatives and other high-risk investment options for funds being offered to retail investors. The country’s largest asset managers – BlackRock (NYSE:BLK), State Street (NYSE:STT) and Vanguard – will be impacted the most in the event the SEC adopts the stricter rules.

  • Trefis has a $77 price estimate for State Street’s shares, translating into a $33 billion market cap. This is slightly ahead of the market price of between $72-74 seen over the week.
  • We estimate the company’s FY 2014 revenues to be around $10.2 billion for an earnings per share of $4.77, compared to a consensus of $4.81 according to Reuters

See our full analysis for State Street

JPMorgan

JPMorgan (NYSE:JPM) is one of several banks that have signed an agreement with Apple to integrate their payment systems with Apple Pay. The proprietary phone-based system has the support of each of the country’s six largest commercial banks, and is seen as a winning proposition for everyone involved. The payment system is secure and hassle-free for iPhone users, while Apple and the partnering banks will pocket a percentage of each transaction as swipe fees.

  • Trefis has a $65 price estimate for JPMorgan’s shares, translating into a $245 billion market cap. This is about 10% ahead of the market price between $59-60 seen over the week.
  • We estimate the company’s FY 2014 revenues to be $95 billion for earnings per share of $5.51, compared to a consensus of $5.52 according to Reuters

See our full analysis for JPMorgan

RBS

RBS (NYSE:RBS) announced plans to sell a 25% stake in its U.S. retail banking unit Citizens Financial Group (CFG) earlier this week (see RBS Announces An IPO To Divest 25% Stake In Citizens). The U.K.-based financial banking group set itself a target of cutting its stake in CFG by 20-25% by early 2015, and of completely exiting the business by the end of 2016 under pressure from the U.K. government, to focus its operations in the U.K. The stake sale will generate up to $3.5 billion for the cash-strapped banking group – valuing CFG at $14 billion.

RBS also formally announced its decision to shift its headquarters to London in the event Scotland secures its independence from the U.K. in the referendum to be held next week. [3] The bank states that the implications of a “Yes” vote on its “credit ratings, and the fiscal, monetary, legal and regulatory landscape” led to the decision. Notably, the bank’s shares sunk almost 3.5% Monday, September 8, after a survey reported for the first time ever the possibility of Scotland’s secession. When another survey came to a different conclusion later on September 10, the shares jumped 2.5%.

  • Trefis has a $13 price estimate for RBS’s shares, translating into a $41 billion market cap. This is roughly 15% ahead of the market price of around $11-11.50 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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Notes:
  1. Goldman Sachs in $2 Billion Partnership With N.Y. Pension, Bloomberg, Sept 11 2014 []
  2. SEC Preps Mutual Fund Rules, The Wall Street Journal, Sept 7 2014 []
  3. Contingency planning for Scottish Independence Referendum, RBS Press Releases, Sept 11 2014 []