Financials Weekly Notes: RBS, BofA & US Bancorp

It has been a largely positive first week of the year for the financial sector as a whole. Bank shares rallied significantly over trading on Tuesday after positive December manufacturing output figures for countries across the globe partially eased investor concerns about the European debt crisis impacting businesses in other major economies (see Bank Stocks Rally on Fed Announcement, Manufacturing Recovery). The Federal Reserves’ move to increase transparency in the fed funds rate helped bank shares to rally further that day. Thursday turned out to be another eventful day on Wall Street, as U.S. banks saw an improvement in share prices amid rumors that the government may initiate a new mortgage refinancing program, while European banks notably declined over renewed fears that the banks will need to raise substantial fresh capital. This was a particularly eventful week for The Royal Bank of Scotland (RBS) Group (NYSE:RBS), Bank of America (NYSE:BAC) and U.S. Bancorp (NYSE:USB).

RBS

In its bid to fall in line with the British government’s demand of shrinking its risky investment banking operations, RBS may let go of as many as 10,000 employees and could incur restructuring costs of up to $3 billion. The U.K.-based banking group’s top management is looking at various plans for the investment bank with options ranging from the sale of individual units to a complete shut-down of entire divisions. The group is very likely to get rid of its equities business completely in the near future.

You can continue reading about this in our article, RBS May Cut 10,000 Investment Banking Jobs.

See our full analysis for RBS’s stock

Bank of America

Bank of America’s shares gained more than 13% through Thursday, with the bank gaining the most among all banks – 8.6% to be exact – from rumors that the U.S. government will soon introduce a new mortgage refinancing plan that extends beyond the existing HARP Program. ^[1]

The rising concerns about the quality of Bank of America’s mortgage portfolio, which evidently deteriorated further with the acquisition of Countrywide, were quenched by these rumors. Investors consequently went into a buying frenzy for the troubled bank’s stock.

See our full analysis for Bank of America’s stock

U.S. Bancorp

U.S. Bancorp has filed a lawsuit against JPMorgan Chase (NYSE:JPM) over mortgage securities worth around $95 million it bought from Bear Sterns in 2005, and wants JPMorgan to buy back the poor-quality mortgages that are now weighing down on its balance sheet. JPMorgan has been sued over securities worth nearly $55 billion since the global economic crisis of 2008, and the increasing number of mortgage-related lawsuits from that period may substantial undermine the value of all major banks.

You will find more details in our article, U.S. Bancorp Sues JPMorgan over Bear Sterns Mortgage Securities.

See our full analysis for U.S. Bancorp

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1. BofA Gains on Speculation of U.S. Mortgage Refinancing Beyond HARP Program, Bloomberg, Jan 5 2011 [↩]