Weekly Financial Biz Recap: Mortgage Servicers Made Honest, Wells Fargo and JPMorgan Earnings
Hartford Financial (NYSE:HIG) sees its 2011 profits decline by 61 percent amid its ongoing downsizing of operations. CEO Liam McGee acknowledged the situation by announcing to the board that he will not take a bonus for the year.
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The CFTC has accused the Royal Bank of Canada (NYSE:RY) of engaging in illegal trade futures, by the bank does not intend to settle in court. Instead, Royal Bank will challenge the CFTC in court, according to its attorney Arthur Hahn, who notes that “It was a conscious decision to defend ourselves vigorously, and we made that decision because we believe we didn’t do anything wrong.”
HSBC (NYSE:HBC) is in the process of divestiture of its non-core assets. The bank is reportedly in talks with Korea Development Bank regarding a possible sale of Korean retail banking and wealth management unit, and also in preliminary negotiations with other companies over sales of its Pakistan operations. No estimates of figures have been released thus far.
New rules under consideration by the Consumer Financial Protection Bureau could compel such mortgage servicers as Wells Fargo (NYSE:WFC), Citigroup Inc. (NYSE:C), Bank of America (NYSE:BAC), and JPMorgan (NYSE:JPM) to be far more upfront regarding costs faced by homeowners, and to issue warnings prior to any changes in interest rates.
Wells Fargo initiates coverage of Raymond James (NYSE:RJF) at Outperform, and shares pop. The analyst remarked that Raymond James is “one of the best-run firms in financial services, and we attractively view its low-risk private client focused business model.”, and expressed praise over the brokerage’s purchase of Morgan Keegan as “a meaningful earnings per share driver near term,” particularly if the economy improves.
BTIG begins coverage of Genworth Financial (NYSE:GNW) with a Buy rating, as the analyst opines that the share price is undervalued. Reasons cited include Genworth’s ample liquidity, solid capital position, moderate leverage, adequate reserves and the improving trajectory of its operations. While BTIG acknowledges that the firm’s mortgage insurance division is generating some challenges, it forecasts that Genworth is set to return to positive margins next year.
Barclays raises its target price for American Express (NYSE:AXP) from $60 to $70, which is approximately 23 percentgabove current levels, and shares move upwards. Reasons offered for the move include a forecast that next week’s first quarter earnings report will show $1.03 per share, which would be $0.03 above consensus; and also that the market underestimates American Express’ expense leverage and the feasibility of its 8 percent long-term revenue growth target.
A valuation of between $7.5 billion and $8 billion is the target of private equity firm Carlyle Group (CARL), when it intends to offer 10 percent of the company at its initial public offering, which could take place as soon as next week. First, Carlyle is monitoring what comes from Tuesday’s scheduled listing of rival Oaktree, which hopes to raise some $517.5 million.
Possible solutions exist for some ‘problem loans’ belonging to Fannie Mae’s (FNMA.OB) and Freddie Mac’s (FMCC.OB) portfolios, but those solutions would become the Treasury’s (and the taxpayers’) problems. FHFA Acting Director Edward DeMarco said Tuesday that the institutions could save $1.7 billion by forgiving principal on the loans, but taxpayers would lose $2.1 billion because the savings on principle would come from Treasury incentives via the expanded Home Affordable Modification Program, using TARP funds.
Investing Insights: Citigroup, Inc. First Quarter Earnings Sneak Peek.
In what could be bad news for investment banks, BlackRock (NYSE:BLK) hopes to introduce a trading platform that would enable money managers, including sovereign wealth funds and insurance companies, to trade bonds directly with each another. The platform, which could be launched this year, would allow traders to avoid charges from the large banks as the process would completely leave them out.
Aviva (NYSE:AV) might be planning a sale of its core life assurance business in the U.S., according to The Financial Times. Although the company paid around £2 billion for most of the operations in 2006, it’s estimated that the life assurance division could only bring a maximum of £1 billion. This overhaul has so far resulted in Aviva exiting nine markets.
Is it redlining? The U.S. government’s HUD is investigating whether top mortgage lender Wells Fargo (NYSE:WFC) has violated fair-lending laws by neglecting bank-owned homes in minority communities, according to Bloomberg. The case could wind up at the Justice Department, if wrongdoing is found and WFC fails to reach an agreement with which to have it remedied.
Multiple lawsuits against MBIA (NYSE:MBI) seem to be on their way to settlement, and the company’s shares move higher. UBS, Aurelius Capital and Fir Tree have settled their suits, and Bank of America, Societe Generale and Natixis could do the same in a very few days, according to MKM Partners. The suits pertain to the 2009 split of MBIA’s bond insurance business, in which the plaintiffs claim that holders of $240 billion of debt were injured, to the benefit of MBIA stock investors.
JPMorgan Chase (NYSE:JPM) released its first quarter results Friday, which were upbeat. Earnings per share of $1.31 exceeded consensus by $0.16, while JPM’s revenue of $27.4 billion was up 6 percent year-to-year and was $3 billion over projections. A $0.28 increase in earnings resulting from reduced loan loss reserves was posted, along with $0.17 from the WAMU settlement. First quarter charges of $0.39 for mortgage litigation reserves and $0.14 for DVA were noted, along with Basel I Tier 1 capital ratio of 10.4 percent, and Basel III Tier 1 of 8.4 percent.
Earnings Report: JPMorgan Chase Co. Earnings: Another Quarter of Falling Net Income.
On Friday Wells Fargo (NYSE:WFC) posted its first quarter statement, which showed improvement over its fourth quarter, with a projection of ‘continued but slower improvement in credit this year’. A net interest margin of 3.91 percent beats the fourth quarter by 2 basis points but is lower than the same period 2011 by 14 basis points. Wells’ first quarter net charge-offs were $2.4 billion, a figure $245 million lower than its fourth quarter, decreasing the annualized rate to its lowest level since 2007, at 1.25 percent. Approximately 10 percent of total income came from the company’s reserve release of $400 million.
Oaktree Capital (OAK), which purchases distressed debt, fell 1.4 percent on its initial public offering day, and shares fell again on Friday midday. Investors don’t seem impressed by the firm cutting the size of its offering, and pricing its shares at the lowest end of their expected range. Oaktree’s rival Carlyle (CARL) can’t be encouraged by this performance, as it prepares its own debut.
JPMorgan’s (NYSE:JPM) first quarter earnings exceeded expectations, but investors do not seem to be excited over it. However, Citi analysts, recognizing that JPM is a major U.S. credit card issuer, opine that as such the company is providing a positive example for its peers in that sector, i.e, its year-to-year card spending growth is rising, and second quarter charge-offs are expected to improve. Visa (NYSE:V), Master Card, Inc. (NYSE:MA), and American Express (NYSE:AXP), take note.