Financials Weekly Notes: U.S. Bancorp, Citigroup, JPMorgan And RBS

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42.47
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U.S. Bank

Investor sentiments took a beating this week, when a series of economic and geopolitical events unfurled in quick succession over the period. Bank shares reflected trends seen across the larger market, with prices declining over the first two days of the week in response to newly proposed laws aimed at curbing corporate tax inversions as well as to the U.S.-led airstrikes in Syria. With the U.K. hinting at similar military action, investors balked at the escalating situation in the region and led the S&P 500 and Dow Jones sharply lower from the record highs seen over previous weeks. To make things worse, news that the Federal Reserve could raise interest rates next spring – several months earlier than what was expected – only raised additional concerns among investors. This triggered a sell-off on Thursday, September 25, which made it one of the worst trading days of the year in terms of the total market decline. The KBW Bank Index fell to under 72 from a high of almost 74.50, which was seen for the first time since the economic downturn of 2008 on September 19.

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

U.S. Bancorp

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U.S. Bancorp (NYSE:USB) will shell out $9 million in fines and return another $48 million to customers after the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CPFB) found it guilty of illegal billing practices. [1] The regional banking giant was found to have wrongly billed customers for identity theft and credit monitoring services – add-on services marketed along with its credit cards. Over recent years, regulators have also found rivals Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM) and Capital One (NYSE:COF) guilty of similar charges. [2]

  • Trefis has a $44 price estimate for U.S. Bancorp’s shares, translating into an $80 billion market cap. This is slightly ahead of the market price between $42-42 seen over the week.
  • We estimate the company’s FY 2014 revenues to be around $19.8 billion for an earnings per share of $3.07, compared to a consensus of $3.10 according to Reuters

See our full analysis for U.S. Bancorp

Citigroup

Citigroup (NYSE:C) remains caught in the midst of the ongoing legal battle between Argentina and U.S. courts, as the global banking group cannot process an interest payment due to a U.S. court order barring any bank from disbursing payments related to the country’s debt. After an appeal by the bank was denied by U.S. courts, Citigroup is seeking a pause on the order so that it can meet the September 30 deadline for a $5 million interest payment. [3] A failure to process the payment could attract regulatory and criminal sanctions for the bank in Argentina.

  • Trefis has a $58 price estimate for Citigroup’s shares, translating into a $176 billion market cap. This is about 10% ahead of the market price between $52-53 seen over the week.
  • We estimate the company’s FY 2014 revenues to be around $78.6 billion for an earnings per share of $4.20, compared to a consensus of $3.60 according to Reuters

See our full analysis for Citigroup

JPMorgan

JPMorgan (NYSE:JPM) has sold its health savings account (HSA) unit to HSA Bank, a subsidiary of Webster Financial for an undisclosed price. The diversified banking group had earmarked the unit for sale as a part of its cost cutting plan in January, and will transfer $1.3 billion in deposits and $175 million in investments to HSA Bank – increasing the latter’s share in the industry to 17.5% from 10% currently. You can read more about this in our article JPMorgan Sells Health Savings Account Unit To Webster Financial.

  • 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 $60-61 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) successfully divested a 25% stake in its U.S. retail banking unit Citizens Financial Group (CFG) this week in the biggest bank IPO since the economic downturn. [4] CFG shares were priced at $21.50 per share – below the expected range of $23-25 (see RBS Announces An IPO To Divest 25% Stake In Citizens). The U.K.-based banking group raised $3 billion in much-needed cash as it took an important step towards its target of exiting the business by the end of 2016.

  • 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. OCC Assesses Penalty Against U.S. Bank National Association; Orders Restitution for Unfair Billing Practices, OCC Website, Sept 25 2014 []
  2. CPFB Factsheet []
  3. Citigroup to seek pause of order blocking Argentine bond payment, Reuters, Sept 22 2014 []
  4. Pricing of the IPO of Citizens Financial Group, RBS Press Releases, Sept 24 2014 []