Financials Weekly Notes: BofA, Goldman, BNY Mellon and UBS

October 10th, 2014 by Trefis Team
+10.47%
Upside
28.11
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31.05
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Bank shares have seen a marked reduction in value over what has been a rather volatile week for the equity market at large. With uncertainty about global economic conditions remaining the biggest source of concern for investors, many of them booked profits at the beginning of the week in response to reports of an imminent price correction in the equity market. The resulting decline in share prices on Monday and Tuesday was nullified by the increased level of trading activity on Wednesday, October 8, when the Federal Reserve gave investor sentiments a boost by vowing to maintain current interest rates until it is sure that the U.S. economy can withstand a rate hike. [1] However, the gains made over the day were wiped out on Thursday after Germany posted worse-than-expected economic data – bringing concerns about faltering European economic conditions back in focus. The KBW Bank Index sank more than 3% over the week.

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

Bank of America

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Bank of America (NYSE:BAC) has taken over JPMorgan’s (NYSE:JPM) oil-supply agreement with Philadelphia Energy Solutions – bringing to a close talks that began early in September. [2] The deal only pertains to the finance-related aspects of JPMorgan’s original contact, which also included terms for the supply of oil to the refinery. ((J.P. Morgan in Talks to Sell Oil-Supply Agreement, The Wall Street Journal, Sept 2 2014)) The move was a result of increasing pressure by regulators on the country’s biggest banks to exit the physical commodities business, as JPMorgan sought to sell the contract when it was getting rid of its entire physical commodities unit.

  • Trefis has an $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 of 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 $0.85.

See our full analysis for Bank of America’s stock

Goldman Sachs

Goldman Sachs (NYSE:GS) and 17 other global banking giants have collectively agreed to a major change in derivative rules. [3] The banks have agreed to forfeit the right to close out derivative positions with companies in a distressed financial condition – a practice that played a big role in pushing Lehman Brothers towards bankruptcy in 2008. The rule is expected to be formally announced over the coming weeks and will go into effect at the beginning of 2015.

See our full analysis for Goldman Sachs

Bank of New York Mellon

BNY Mellon (NYSE:BK) announced plans to acquire Cutwater Asset Management – a subsidiary of the municipal bond insurance giant MBIA – early in the week (see BNY Mellon Strengthens Fixed Income Offerings With Cutwater Acquisition). The deal will add roughly $23 billion in fixed income assets to the custody banking giant’s investment management division, which managed more than $1.6 trillion in assets at the end of Q2 2014. The value of the deal, which is expected to close in Q1 2015, was not disclosed.

  • Trefis has a $37 price estimate for BNY Mellon’s shares, translating into a $42 billion market cap. This is slightly below the market price of between $37.50-39 seen over the week.
  • We estimate the company’s FY 2014 revenues to be around $15 billion for an earnings per share of $2.42, compared to a consensus of $2.39 according to Reuters

See our full analysis for BNY Mellon

UBS

UBS (NYSE:UBS) is reportedly looking to reorganize its asset management business in France – a move which is in line with the Swiss bank’s long-term strategy of focusing on private banking operations. [4] The bank is currently being investigated by authorities in France for tax evasion, and the Swiss government handed over information of about 300 of the bank’s clients to French investigators over the week. [5]

  • Trefis has a $22 price estimate for UBS’s shares, translating into an $80 billion market cap. This is 30% ahead of the market price between $16-17 seen over the week – something we largely attribute to the sharp selling in the bank’s shares over recent weeks following rumors that the bank may be forced to cough up as much as €4.9 billion ($6.2 billion) in fines to settle French tax evasion charges.
  • 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

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Notes:
  1. S&P 500 has best day in a year following Fed minutes, Reuters, Oct 8 2014 [↩]
  2. Bank of America Takes Over J.P. Morgan Oil Deal, The Wall Street Journal, Oct 8 2014 [↩]
  3. Banks rewrite derivatives rules to cope with future crisis, Financial Times, Oct 7 2014 [↩]
  4. UBS France plans to reorganize asset management business, Reuters, Oct 6 2014 [↩]
  5. Swiss authorities give France documents on 300 UBS customers: SonntagsZeitung, Reuters, Oct 5 2014 [↩]