Financials Weekly Notes: JPMorgan, State Street and UBS

+4.15%
Upside
72.49
Market
75.50
Trefis
STT: State Street logo
STT
State Street

This week has been a roller coaster ride for bank shares, with gains seen over the beginning of the week being wiped out on Wednesday, November 12 (see Five Banks Settle Forex Manipulation Charges For $3.4 Billion). Investors were optimistic about the state of the U.S. economy over the beginning of the week, as the earnings season continued to deliver positive surprises as key indicators remain upbeat, and this manifested in gains across the equity market. But with regulators in the U.S., U.K. and Switzerland handing out a $3.4 billion fine to 5 global banking giants on Wednesday for rigging forex rates, the banking sector took a hit that day. The situation was made worse by Bank of England’s downward revision of its growth and forecast estimates for the U.K., and by German Chancellor Angela Merkel’s call for fiscal discipline in the Eurozone instead of the ECB recommended asset purchase program. This renewed fears of repercussions from the sluggish European economy on the U.S. The KBW Bank Index lost about 0.5% over the week through Thursday.

UBS

UBS (NYSE:UBS) will cough up the largest fine among the five banks that settled with regulators for their role in manipulating foreign exchange rates. The Swiss banking giant will pay a little more than $800 million to the U.S. CFTC, British FCA and Swiss FINMA. The bank will also come under increased scrutiny from FINMA, and has to restrict bonuses to all its employees working globally in foreign exchange and commodities trading operations to below 200% of their base pay for the next two years. Incidentally, the bank’s share price increased after the settlement was announced – unlike the notable decline in share prices for the other banks involved in the settlement – indicating that investors had priced in a higher penalty for UBS in its share value.

  • Trefis has a $20 price estimate for UBS’s shares, translating into a $75 billion market cap. This is roughly 15% ahead of the market price of around $17 seen over the week
  • We estimate the company’s FY 2014 revenues to be around $31.5 billion for an earnings per share of $1.04, compared to a consensus of $1.29 according to Reuters

See our full analysis for UBS

JPMorgan

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JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Synchrony Financial (NYSE:SYF) (formerly GE Capital Retail Finance) are reportedly under investigation for violating federal bankruptcy law. [1] The financial institutions have been accused of ignoring bankruptcy court discharges on several occasions when it came to personal bankruptcy – keeping debts alive on their balance sheets as well as on credit reports in order to pressure individuals to pay dues which have legally been declared void. If found guilty of these charges, the lenders will undergo a strict audit and are likely to shell out millions of dollars in fines and reimbursements.

  • Trefis has a $65 price estimate for JPMorgan’s shares, translating into a $243 billion market cap. This is about 10% ahead of the market price of $60-61 seen over the week.
  • We estimate the company’s FY 2014 revenues to be $96 billion for earnings per share of $5.46, compared to a consensus of $5.48 according to Reuters

See our full analysis for JPMorgan

State Street

As a part of its quarterly SEC filing earlier this week, State Street (NYSE:STT) revealed that it has been subpoenaed by the U.S. Department of Justice (DoJ) and the SEC for its use of consultants and lobbyists for soliciting the asset servicing business of public retirement plans. [2] An adverse outcome could result in fines or other penalties.

  • Trefis has a $78 price estimate for State Street’s shares, translating into a $33 billion market cap. This is slightly ahead of the market price between $76-78 seen over the week.
  • We estimate the company’s FY 2014 revenues to be around $10.2 billion for an earnings per share of $4.92, compared to a consensus of $4.83 according to Reuters.

See our full analysis for State Street

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Notes:
  1. Debts Canceled by Bankruptcy Still Mar Consumer Credit Scores, New York Times, Nov 12 2014 []
  2. Q3 2014 10-Q, SEC Website, Nov 10 2014 []