Weekly Financial Biz Wrap: JPMorgan Under Microscope, Moody’s BIG Bank Downgrade


JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), and other mortgage servicers could realize as much as $12 billion in revenues in 2012, by refinancing mortgages under the Federal program HARP, which is a federal program designed to assist struggling homeowners. In contrast, borrowers who take advantage of HARP refinancing may save between $2.5 billion and 5 billion this year.

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Likely being punished for its share of an insider trading scheme in Japan, top underwriter Nomura (NYSE:NMR) is disallowed from participating in the Japanese government’s divestiture of $6 billion worth of Japan Tobacco shares. Observer wonder if the bank will also be excluded from the upcoming Japan Airlines initial public offering.

A list of the majors banks most exposed to shrinking net interest margins (compiled by John Pancari at Evercore) includes Bank of America (NYSE:BAC), Commerce (NASDAQ:CBSH), FirstMerit (NASDAQ:FMER), First Niagara (NASDAQ:FNFG), Wells Fargo, M&T (NYSE:MTB), BBT, and PNC. The list of those best able to deal with the margins has JPMorgan, KeyCorp (NYSE:KEY), and Regions (NYSE:RF) all aboard.


The Royal Bank of Scotland (NYSE:RBS), in the face of the newly announced stimulus, intends to lay off an additional 600 employees, mostly from the financial planning unit which faces new rules that require a more highly qualified personnel. The downsize will bring the total number of terminations since its bailout in 2008 to 36,000, in a company that is 82 percent government owned.

The Fed is extending the time in which MetLife (NYSE:MET) must file a new capital plan by three and one half months (to September 30th). Met is currently divesting assets to influence the oversight, while the Fed has rejected its attempts at raising the dividend, or recommencing buybacks. The firm’s dividend seems to be stuck at 74 cents, which its rival Prudential (NYSE:PFK) has raised its own three times since 2008.

Earnings Report: Discover Financial Earnings: Snaps Strong Streak with Profit Drop.

Bank of America (NYSE:BAC) is in talks with the Swiss firm Julius Baer about divesting Merrill Lynch’s non-U.S. wealth management operations to the latter. Such a move (which might be worth up to $2 billion) would follow the current trend of the big banks selling off their assets for capital. For its part, Julius Baer says that “Given the early stage of these discussions, the outcome is entirely open.”.

On a day in which Jamie Dimon again testifies before a Congressional committee, JPMorgan (NYSE:JPM) is being investigated by the SEC as to whether the company misled investors in its first quarter statement by not disclosing it had altered how it measured risk, said the agency Chairwoman Mary Schapiro to a House committee. It seems that Dimon might have ignited this one himself in a conference call, when he dismissed reports of increased risk as a “tempest in a teapot”.


Several banks are in the process of redeeming a combined $3.1 billion worth of trust preferred securities, following a ruling by the Fed that the paper can no longer be counted in Tier 1 capital calculations. BB&T Corporation (NYSE:BBT) now joins that number of companies performing the task.

JPMorgan (NYSE:JPM) gets a good news day on Wednesday (so far), even as Jamie Dimon is again In Residence on Capitol Hill. Shares continue their upwards movement that began Tuesday, partially on the word that the recently strong financial markets have enabled JPM to rid itself of between 65 and 70 percent of its cash hemorrhaging London Whale position. In addition, the firm is poised to obtain a windfall from an investment in the London Metal Exchange (which itself was offered an eye-popping acquisition price last week from Hong Kong exchanges), that it grabbed in November from the bankrupt MF Global.

NYSE Euronext (NYSE:NYX) sets its exchange in London in motion, as it goes up against London Stock Exchange in The City, with Groupe Eurotunnel (GRPTF.PK) as its first London listing. A difficulty to surmount, however, is that trading on the London Stock Exchange is barely moving, and the market for IPOs has been down since a very famous one did not go well, about a month ago.

Goldman Sachs (NYSE:GS) and SocGen (SCGLY.PK) could be in for trouble in North Africa, as the Libyan Investment Authority is looking into the possibility that it can “claim a refund” for the $1.75 billion that it lost through structured products that were managed by the two banks.

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Weaknesses of certain foreign currencies against the dollar could cause Citigroup’s (NYSE:C) book value to fall between $3 billion and $5 billion in the current quarter, reports Charles Peabody of Portales Partners LLC. Although Citi depends upon developing nations for more than half its profits, and the Brazilian real and the Mexican peso have depreciated, the company does not agree with Peabody’s assessments.

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JPMorgan (NYSE:JPM) officially caps issuance of its popular Alerian MLP Index ETN (NYSE:AMJ) at the 129 million shares that are now outstanding. This action is connected to the difficulty of hedging the ETN’s influence on the master limited partnership market, and probably not much to do with Jamie Dimon’s promise to reduce risk.

KeyBank (NYSE:KEY) is acquiring 37 HSBC (HSBC) branches in Buffalo and Rochester, and says the transaction should close on July 13. The deal will add approximately $2.4 billions in deposits and $400 million in loans to the buyer’s balance sheet, which shows current assets of about $90 billion.


Morgan Stanley (NYSE:MS) shares seem to be unaffected on Friday afternoon, as it avoided the dreaded 3-notch downgrade from Moody’s Thursday night. The company reveied a 2-notch downgrade, which means that it will face approximately $3 billion less in collateral calls from trading partners, than will the others who were not so fortunate. MS did much shifting of its $1 trillion (notional) in derivatives into its U.S. bank unit during the first quarter, and the bank is rated one notch higher than is the holding company, so the derivatives in the bank will require lower collateral posting; Morgan has approximately $50 trillion in notional derivative exposure.

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Citigroup (NYSE:C) is acquiring a portion of French lender Societe Generale’s (SCGLY.PK) shipping loan book for a price that has not been divulged. The latter is divesting its property, shipping, and aircraft financing businesses, so as to raise capital.

Goldman Sachs (NYSE:GS) is unable to have a lawsuit brought by a shareholder dismissed, in which it is alleged that the firm has conflicts of interest related to collateralized debt obligation transactions. In 2010 GS was charged with fraud by the SEC, which led to its shares falling some 13 percent; the matter was subsequently settled for $550 million.

Is it just relief that it’s over? Shares of the ‘Too Big To Fail’ companies that were downgraded by Moody’s Thursday night are doing just fine on Friday, thank you. In mid-afternoon trading, shares were up for Citibank, Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), Goldman Sachs, Morgan Stanley, which got only a 2-notch downgrade; and in Europe, The Royal Bank of Scotland (NYSE:RBS), Lloyds (NYSE:LYG), Credit Suisse (NYSE:CS), UBS (NYSE:UBS), Deutsche Bank (NYSE:DB), Barclays (NYSE:BCS), and Banco Santander SA (NYSE:SAN).

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