Financials Weekly Notes: JPMorgan, BofA, RBS and UBS

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Bank shares mirrored the overall market last week, with declines seen over the first four days being almost nullified by a strong rally on Friday, October 3. Investor sentiments remained low at the beginning of the week, as weakness in Europe and the situation in Syria figured high on investors’ minds for the second consecutive week. News that the Federal Reserve could raise interest rates earlier than expected remained a source of concern, and reports hinting at a suppressed earnings season due to strong gains in the U.S. dollar over Q3 only made things worse. However, the U.S. job report released early on Friday showed that the unemployment rate for the month of September fell to a six-year low of 5.9%, helping shares across sectors rally over the day.

Below are some notable events pertaining to major banks that happened last week.

JPMorgan

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JPMorgan (NYSE:JPM) completed the sale of some physical commodities assets to Mercuria over the week. [1] Although the diversified banking group had initially announced plans to sell its entire physical commodities business to Mercuria for $3.5 billion in March, the revised plan saw the bank sell a bulk of the assets to Mercuria with the remaining being sold to other unnamed buyers.

JPMorgan also faces a class action suit from investors over $10 billion in mortgage-backed securities (MBS) that it sold in the run-up to the economic downturn of 2008. [2] Moreover, the bank revealed that the hacking incident discovered in August compromised the accounts of 76 million households and 7 million small businesses. ((JPMorgan Chase says hacking affected 76 million households, Fortune, Oct 2 2014))

  • 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 of $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

Bank of America

Bank of America (NYSE:BAC) was fined $7.65 million by the SEC for overstating its capital position – finally putting a lid on the mistake that forced the bank to re-submit its stress test results to the Federal Reserve and modify its capital plan for the year. [3] The bank had overstated its core capital by $4 billion due to an error in valuing notes it had brought onto its balance sheet as a part of its acquisition of Merrill Lynch in 2009.

  • Trefis has a $18.50 price estimate for Bank of America’s shares, translating into a $195 billion market cap. This is about 10% ahead of the market price around $17 seen over the week.
  • We estimate the company’s FY 2014 revenues to be just under $90 billion and earnings per share of 85 cents.

See our full analysis for Bank of America’s stock

UBS

UBS (NYSE:UBS) took the next step towards a establishing a new corporate structure by offering existing shareholders an option to swap its current shares for those in the newly formed group holding company, UBS Group. [4] The one-for-one share swap will eventually allow the bank enjoy lower capital requirements under Swiss rules, as the new corporate structure will compartmentalize the impact of adverse economic conditions in any region on the bank’s global operations (see UBS Follows Up Lukewarm Q1 Results With Proposal For A New Global Structure).

The Swiss banking giant’s shares also took a beating over the latter half of the week when reports estimated a total fine of €4.9 billion ($6.2 billion) for the bank over tax-evasion charges in France. ((Swiss Bank UBS Could Face a Record-Breaking Tax-Evasion Fine, Bloomberg Businessweek, Oct 3 2014)) The shares lost almost 3% of their value on Friday, although UBS has gone on record to state that this fine figure is speculative.

  • Trefis has a $22 price estimate for UBS’s shares, translating into an $80 billion market cap. This is almost 30% ahead of the market price of around $17 seen over the week – something we largely attribute to the sharp selling in the bank’s shares.
  • We estimate the company’s FY 2014 revenues to be around $32.3 billion for an earnings per share of $1.17, compared to a consensus of $1.28 according to Reuters

See our full analysis for UBS

RBS

RBS (NYSE:RBS) saw its shares gain over the beginning of the week following reports that the U.K.-based bank will release $1.3 billion in provisions in Q3 – greatly boosting its earnings estimates for the quarter as well as full year 2014 (see Q3 Results At RBS To Benefit From $1.3 Billion Provision Release). The reserve release is a result of improving credit conditions in Ireland, which allowed the bank to dip into provisions for its Ulster Bank operations in the country. The bank will also release a sizable chunk of provisions related to the legacy businesses it is looking to dispose of over coming years.

  • Trefis has a $13 price estimate for RBS’s shares, translating into a $41 billion market cap. This is roughly 10% ahead of the market price of around $11.50-12 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. J.P. Morgan Completes Sales of Physical Commodities Assets, JPMorgan Press Releases, Oct 3 2014 []
  2. JPMorgan to face U.S. class action in $10 billion MBS case, Reuters, Sept 30 2014 []
  3. Bank of America Pays $7.65 Million to Settle SEC Charges, Wall Street Journal, Sept 29 2014 []
  4. UBS publishes prospectus of its share-for-share exchange offer to establish a group holding company, UBS Group AG, UBS Press Releases, Sept 29 2014 []