Investors were quite wary of the equity market over the larger part of the week as they waited anxiously for the Friday releases of U.S. jobs data for the month of May. As the Fed’s stimulus package is linked to unemployment figures, investors fear that strong employment figures will result in the Fed shrinking, or “tapering,” its asset purchase plan over the coming months – a sentiment that lowered the overall market for the week. The situation is no doubt ironic, as an improvement in the country’s job environment points to an improving economy. But then the biggest factor behind this improvement has arguably been the Fed’s diligent efforts to stick to its plan, to purchase assets worth $85 billion each month to ensure liquidity in the financial market and stimulate growth.
The financial sector also had to contend with more bad news from across the Atlantic, when the European Central Bank (ECB) warned of more bad time to come for the eurozone and also did not offer immediate steps to help resolve the continuing slowdown in the region.
Below are some significant events pertaining to major banks that were witnessed over this week.
Under pressure for quite a while now over the banking giant’s shrinking net interest margin (NIM) figures, Wells Fargo’s (NYSE:WFC) top bosses are upbeat about the outlook for this key metric over the coming quarters. In recent investor events, CEO John Stumpf and CFO Timothy Sloan, argued that the sharp fall in the bank’s NIM compared to peers who have seen more subtle declines (and even improvements) over the last few quarters is because the bank has been deferring decisions to invest a chunk of its cash, in hopes of doing so when the interest rates improve. Still hopeful of the fact that interest rates will bounce back over the coming months, the mortgage-industry leader is keen on reversing the trend in its interest margins.
You can read more about how Wells Fargo’s positive outlook for its NIM figures will help its shares in the article Wells Fargo The Opportunist, Brushes Off Net Interest Margins Concerns.
Earlier this week, U.S. Bancorp (NYSE:USB) was sued by the Commodity Futures Trading Commission for its inability to protect the deposits of customers who lost $215 million in an elaborate fraud committed by Peregrine Financial Group.  While the lawsuit does not accuse the banking group’s subsidiary U.S. Bank of assisting Peregrine founder and CEO Russell Wasendorf Sr., it alleges that the bank’s lack of diligence in the situation facilitated the fraud.
The bank responded to the lawsuit by stating that far from being an accomplice in the scandal, it is actually a victim. The lawsuit represents a liability of a few million in fines and/or settlements for U.S. Bancorp, and may also require the bank to make additional investments towards tightening its operating and auditing processes.
The Royal Bank of Scotland Group (NYSE:RBS) continues its efforts towards disposing the 316 branches as mandated by the European Commission, with the U.K.-based banking group bringing down the list of potential acquirers for the branch network, from more than half a dozen financial groups at the end of last year to three "finalists." RBS had to re-initiate the process of selling the branch network, dubbed “Project Rainbow,” when Santander (NYSE:SAN) pulled out of the deal it had signed with RBS for the branches last October, due to technology and separation-related complexities.
RBS will most likely get rid of the branches by the end of the year, pocketing between £800 million to £1 billion ($1.2-$1.5 billion) in the deal. It must be mentioned here that this figure is well below the £1.65 billion ($2.5 billion) RBS stood to gain, if the original deal with Santander had gone through.
You can read more about how RBS’s rationale behind selling these branches and the impact on its overall business in the article RBS Closes In On Branch Sale Deal As Part Of Bailout Agreement.
- U.S. Bank Sued Over Peregrine Role, The Wall Street Journal, Jun 5 2013
Disclosure: No positions