Weekly Financial Biz Recap: Morgan Stanley Whipped, Credit Card Shares Downgraded

Lloyds (NYSE:LYG) as well as two of its former executives, face suits from United States shareholders. The allegations are regarding the “reckless disregard for the truth” displayed during the rescue of lender HBOS in 2008. At the time, Lloyds called the takeover a “fantastic opportunity;” weeks later, Lloyds was forced to accept a state bailout.

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Although 844 institutions still face trouble, the number of banks (NYSEARCA:KBE) that failed went from 157 in 2010, to just 92 in 2011 and the number of “problem banks” dropped as well. The improving economy means that banks deteriorate more slowly, thus giving them more time to turn things around.

Morgan Stanley (NYSE:MS) and JPMorgan Chase & Co (NYSE:JPM) had trouble following U.S. banks (NYSEARCA:XLF) higher as the sector responded to optimism about economic growth in emerging markets. The cost of insuring against the default of European sovereign debt was up this morning, but credit default swap protection actually fell for U.S. banks. At Bank of America (NYSE:BAC) Credit Default Swap spreads fell to 397 basis point vs. 404 a week ago and nearly 500 in November.

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The Fed has released for the first time results of the department’s monthly survey of primary dealers. The numbers are one month old, and demonstrate that 60% think that the first bump in the Fed Funds rate will not occur before 2014. Three percent predict a rise in rates as early as H2 2012.

Investing Insights: Can the Financial Sector Keep the New Year’s Momentum Going?

The Wall Street Journal writes that executives and employees at Jefferies’ (NYSE:JEF) prime brokerage are threatening to walk over points of contention including recent restructuring and year-end compensation. Tuesday, Glen Dailey was appointed head of the unit. Also, prime brokerage executives are reported to have been given a more satisfactory compensation structure, and assurances of potential gains for employees.

MasterCard (NYSE:MA) and Visa (NYSE:V) have been downgraded by Janney to Neutral, as the firm anticipates customers continuing their drive to reduce debt in 2012 thereby causing a “sluggish” market for credit card companies.

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Credit Suisse (NYSE:CS), DBS Bank, Deutsche Bank (NYSE:DB) and Mizuho Corporate Bank are arranging a $4 billion loan for Alibaba, sources say. Alibaba is considering acquisition options related to Yahoo (NASDAQ:YHOO). They are trying to bring in some Chinese lenders to the group to help underwrite the loan and spread the risk of the facility.

BMO Financial Group (NYSE:BMO), The Bank of Nova Scotia (NYSE:BNS), Canadian Imperial Bank of Commerce (NYSE:CM), Manulife Financial Corporation (NYSE:MFC), Royal Bank of Canada (NYSE:RY), Sun Life Financial Inc. (NYSE:SLF) were all downgraded by Barclays’ John Aiken. The Canadian financial services sector was downgraded to neutral, expecting domestic and global headwinds to cut into earnings growth. “The steam is dissipating from the Canadian economic engine, with greater downside risk (than forecast),” he writes.

Investing Insights: Bank of America Upgrade Pushes Shares Up 7%.

State Street (NYSE:STT) catches a positive analysis by Goldman Sachs (NYSE:GS). GS calls shares a buying opportunity on valuation, with the pace of 2012 earnings per share revisions stabilizing more quickly than the overall sector. Goldman sees a “modest” downside to Northern Trust (NASDAQ:NTRS), whose cost-cutting program “will take several years to implement.”

Citigroup’s (NYSE:C) Keith Horowitz states a Buy rating on Bank of America (NYSE:BAC). Up to an additional $32 billion could be needed to address mortgage-related losses, but “when you factor in the earnings power and the time it will take to resolve these issues, it appears to be manageable.” Shares are already pricing in a large equity offering, Horowitz adds.

Citigroup (NYSE:C) ended efforts to sell consumer-lending unit OneMain Financial that resulted in no deal. Months of exclusive talks resulted in the failure, which reflects volatile credit markets and investor wariness about loan securitization.

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Bank of America (NYSE:BAC) and Mediobanca, agreed to buy 10% of the 750 million euros of share offering of UniCredit’s 7.5 billion euro share offering, while UniCredit has fallen off 36% this week.

MF Global’s is being probed by the United States Commodity Future Trading Commission or CFTC. Its collapse “investigation” will include whether CME Group’s (NASDAQ:CME) efforts to verify the safety of customer funds were sufficient, the NYT reports. CME faces sanctions if it is found wanting and could even lose its status as a self-regulator.

Wells Fargo (NYSE:WFC) upgrades Travelers (NYSE:TRV) to Outperform from Market Perform. Its price target on shares was also lifted up to $67-$72 from a range of $60-$65. Analysts with the firm raise their earnings per share estimates for 2012 and 2013, saying the company will be “creating new excess capital through earnings.”

Charles Schwab (NYSE:SCHW) is moved to Hold by Deutsche and the firm recommends swapping into TD Ameritrade (NASDAQ:AMTD), upping it from Hold to Buy. The firm calls TD Ameritrade its top pick in the sector.

To contact the reporter on this story: Tanya Harding at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com