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Bank Stock Roundup: Litigation and Restructuring Continue, Wells Fargo & Citi in Focus


Over the last five trading days, performance of banking stocks was upbeat. Improving U.S. economic data and rising 10-year Treasury bond yields supported bank stocks. Moreover, mortgage rates climbed this week to hit 3.85% on expectation of tax cuts under the Trump administration.

Litigations and probes pertaining to banks’ past shoddy activities dominated headlines. The law enforcement agencies have also set to work to resolve such issues and avoid lengthy litigations.

Nevertheless, streamlining operations and acquisitions to enhance profitability have also been witnessed over the last five trading days, cheering investors.

(Read: Bank Stock Roundup for the week ending Sep 22, 2017)

Important Developments of the Week

1. Litigation issues related to past misconducts continue for banks. Recently, at a heated Senate meeting, Wells Fargo & Company’s WFC CEO Timothy Sloan vigorously tried to defend America’s third-largest bank for its past wrongdoings amid a volley of questions raised by senators.

Sloan was grilled for forcing the affected customers of fake accounts scandal into arbitration, in his bid to avoid courtroom hassles. He responded saying that the bank did not prevent its customers from suing and would not do so in the future either. (Read more: Wells Fargo CEO Faces U.S. Senators' Fury Over Scandals)

Amid mounting litigation issues, the Office of the Comptroller of the Currency (OCC) might charge Wells Fargo with new penalties for issues related to car insurance and mortgage loans. The bank is under OCC’s investigation for improperly charging customers for car insurance and mortgage loans, reported this year.

Therefore, if the inquiry reveals a violation of the agreement, known as a ‘Matter Requiring Attention’ to finish off unfair and deceptive business malpractices, the bank will be charged with new penalties. (Read more: Wells Fargo Might Cringe With New Regulatory Penalties)

2. Citigroup Inc. C, has agreed to pay $550,000 to the Commodity Futures Trading Commission (CFTC), as penalty for violations in reporting swap transaction and absence of proper reporting procedure since April 2015 to December 2016. Citibank and London-based Citigroup Global Markets, two subsidiaries of Citigroup, have been charged for improper reporting of Legal Entity Identifier data for swap transactions.

Citi has also been accused of failing to remove errors in such data. However, the commission added that the company cooperated well during the investigation. (Read more: Citigroup to Pay Penalty for Violations in Swap Reporting)

In another case, Citigroup has agreed to pay $1.74 billion to the estate of Lehman Brothers Holdings Inc. for a case that was filed during the 2008 financial crisis. The settlement comes as a tailwind for Lehman’s unsecured creditors in the 10-year old bankruptcy case.

Citigroup had claimed that Lehman owed it $2 billion as a result of bankruptcy. Lehman accused Citigroup of making a false claim, as at that time it had access to $2.1 billion it had on deposit for trades with the bank. Lehman also charged the company of making up extra costs and using unfair methods in order to justify its claim. (Read more: Citigroup to Settle 10-Year Old Dispute With Lehman Brothers)

3. KeyCorp KEY, through its corporate and investment banking unit, KeyBanc Capital Markets Inc., has completed the acquisition of Cain Brothers & Company, LLC. The deal, announced on Aug 15, 2017, was aimed at expanding the company’s existing healthcare investment banking. The move seems to be a good expansion strategy for KeyCorp as healthcare is one of the largest sectors in the United States and there is a growing need for distinctive capabilities.

Moreover, with this buyout, KeyCorp seems to be on track to become a leading corporate and investment bank. The deal should supplement KeyCorp's capabilities and leverage its network. (Read more: KeyCorp Closes Cain Brothers' Deal, Expands Health Advisory)

4. In order to shift operations post Brexit, Citigroup is applying for a French broker license, per James Cowles, chief executive officer for Europe, the Middle East & Africa. Previously, on Britain’s exit, the company had declared Frankfurt as headquarter for trading operations in the European Union. It also announced plans to develop investment and private banking operations in the region.

Cowles said that Brexit would impact about 100-200 jobs. The positions would be transferred between one of its seven core locations across Europe, including Frankfurt, Paris, Milan and Luxembourg. (Read more: Citigroup Applies for Broker License in France Post Brexit)

5. In order to improve operating efficiencies, BB&T Corporation BBT is shutting down its call center at the former Susquehanna Bank headquarters in Lititz, PA. As a result, of its roughly 125 employees, 82 will lose their jobs. The remaining employees will be relocated to the bank’s other facilities in the county. The call center basically catered to BB&T’s back office operations, including administrative and support. The staff members did not deal directly with customers. They will have to leave by mid-December. (Read more: BB&T to Close Pennsylvania Call Center & Cut 82 Jobs)

6. Bank of the Ozarks OZRK announced a 2.8% hike in its quarterly cash dividend. The new dividend of 18.5 cents per share will be paid on Oct 20 to shareholders on record as of Oct 13. This is the 29th consecutive quarterly increase in dividend by the bank. Given a solid capital and liquidity position, the company is expected to continue enhancing shareholder value through efficient capital deployment activities. (Read more: Is Bank of the Ozarks Stock Worth a Look Post Dividend Hike?)

Price Performance

Here is how the seven major stocks performed:


Last Week

6 months






















In the last five trading sessions, Citigroup and Bank of America Corp. BAC were the major gainers, the banks’ shares increasing 4.1% and 3.1%, respectively. Furthermore, Capital One Financial Corp. COF moved up 2.9%.

Citigroup and The PNC Financial Services Group, Inc. PNC were the best performers over the last six months, the banks’ shares jumping 28% and 15.8%, respectively. Moreover, shares of BofA and JPMorgan Chase & Co. JPM increased 13.7% and 13.3%, respectively.

What’s Next?

The focus will solely be on earnings releases next week. Some banks are scheduled to report Q3 earnings in the next five trading days. Bank of the Ozarks will be reporting on Oct 11, JPMorgan and Citigroup on Oct 12, while Wells Fargo, First Republic Bank FRC, First Horizon National Corp. FHN and PNC Financial are scheduled to report results on Oct 13.

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