Bank Stock Roundup: Restructuring Continues, Citigroup & JPMorgan in Focus - Analyst Blog - Bank of America (NYSE:BAC)

Amid ongoing pressure on revenues, the strategy of streamlining operations to reduce costs remained prominent in the last five trading days. JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) lead the field of continued restructuring activities in the industry.

Moreover, the basic finding of the Senate Permanent Subcommittee on Investigations that began probe around two years ago revealed that some of the major Wall Street banks have become the owners of aluminum, natural gas and several other physical commodities, thereby making the financial stability of the U.S. economy more vulnerable. Therefore, the Senate report has made several recommendations that would likely usher more transparency in the banks' involvement in the physical commodity market.

(Read to last week's developments here: Bank Stock Roundup for Nov 14, 2014)

Recap of the Week's Most Important Developments:

1. Some of the major Wall Street banks have become the owners of aluminum, natural gas and several other physical commodities, thereby, making the financial stability of the U.S. economy more vulnerable. This was the basic finding of the Senate Permanent Subcommittee on Investigations that began probe around two years ago.

The Senate report specifically mentions JPMorgan, Morgan Stanley (MS) and The Goldman Sachs Group, Inc. (GS) as the companies that amassed huge stakes in the commodity market, thereby changing its dynamics. This allowed the banks to trade in uranium, operate coal mines and metal ware houses, run oil and gas pipelines, and hoard copper and other metals.

The primary reason for the Senate probe was to examine whether increased participation of banks in physical commodity business would trigger any additional risk. Further, the probe was supposed to identify if increased oversight and regulations are necessary. (Read more: Senate Probe: Banks Exploit Commodity Market)

2. Citigroup is axing around 35 jobs in its capital markets trading operation in London. Notably, the recent layoffs included Valentin Marinov – head of Europe G-10 foreign-exchange strategy in London. This move follows the bank's strategy of reducing costs, amid decreasing business transactions, stricter regulations, high litigation costs and rising popularity of electronic trading. Since the 2008 financial crisis, banks have been reducing highly-paid trading jobs to trim costs. (Read more: Citigroup to Conduct 35 Layoffs on London Trading Floor)

Also, in order to focus on its major clients, Citigroup has eliminated at least five bond salesmen, four of them were engaged in selling debt to mid-size investment firms. The four employees were part of a team that was focused on smaller money-management firms. Notably the team was dissolved last year. The latest move by the Wall Street banking giant seems to be in line with its several strategic initiatives. (Read more: Citigroup Layoffs 5 Bond Salesmen; Focuses on Big Clients)

3. JPMorgan announced a municipal bond deal with LPL Financial LLC, the wholly owned subsidiary of LPL Financial Holdings Inc. (LPLA). JPMorgan opened its door to LPL Financial's extensive network of financial advisors by providing them access to the municipal bonds market. LPL Financial, a leading organization of independent financial advisors, can now enter the municipal bonds market through JPMorgan.

The extended services of LPL Financial's 17,500 financial advisors to this market will help JPMorgan in developing its distribution channels. Moreover, new orders by LPL financial's advisors will be handled the same way as JPMorgan's and other orders submitted to the underwriting syndicate. Financial terms of the agreement were not revealed. (Read more: JPMorgan & LPL Financial Ink Municipal Bond Deal)

4. JPMorgan along with Canadian retailer – Sears Canada Inc., announced its intention to end their 10-year credit card partnership, which includes the credit cards of Sears Card as well as Sears MasterCard. This termination news further emphasizes on the rising troubles of the Canadian retail market and more prominently of Sears Canada, the once star icon of the Canadian department store chains.

The agreement will lapse on its expiration date, which is Nov 15, 2015. Till then, JPMorgan will continue to provide services to Sears Canada's clients. In the mean time, both the companies will search for other alternatives so that Sears Canada can continue to offer the similar skillful services to its customers after JPMorgan's departure. (Read more: JPMorgan to End Credit Card Deal with Sears Canada)

5. Student loan borrowers now have a reason to rejoice as big private lenders of such loans are easing out loan terms to help borrowers reduce their interest costs and repayments. The two big private student loan lenders – Wells Fargo & Company (WFC) and Discover Financial Services Inc. (DFS) are working on loan modification programs. Though the private student loan market slumped following the initiation of direct lending to students in 2010 by the federal government, the industry has been able to record growth.

As of Sep 30, 2014, Discover Financial's portfolio grew 23% year over year. Further, Wells Fargo recorded 6–7% growth in its pool of loans, depicting strong demand for private student loans.

Now the private lenders are easing out loan terms to augment their revenue sources. With the expectation of long-term client relationship, lenders are focusing on growing private student-loan borrowers who in future might take up other banking services, thereby generating income for banks.

Price Performance

Overall, the performance of banking stocks remained muted due to lack of significant positive developments in the industry.

Company	Last Week	Last 6 months
JPM	-0.3%	13.5%
BAC	-0.8%	17.4%
WFC	0.2%	10.7%
C	0.3%	15.0%
COF	-0.8%	8.2%
USB	0.4%	8.0%
PNC	-0.5%	6.4%

In the last five trading sessions, U.S. Bancorp (USB) and Citigroup were the major gainers, with their share prices increasing 0.4% and 0.3%, respectively. However, both Capital One Financial Corp. (COF) and Bank of America Corp. (BAC) declined 0.8%.

Over the last 6 months, BofA and Citigroup were the top performers, with their shares advancing 17.4% and 15%, respectively. Moreover, JPMorgan witnessed a 13.5% price increase over the same time frame.

What Next in the Banking Universe?

Since no major development is expected next week, the performance of banking stocks should not change significantly.

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Bank Stock Roundup: Restructuring Continues, Citigroup & JPMorgan in Focus - Analyst Blog

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