Wednesday, June 2, 2010

Financials Update - $BAC $GS

· Wall St may adjust SF sales - Wall Street’s biggest firms are considering the suitability of selling opaque financial products to governments, endowments and not-for-profit institutions; “Wall Street cannot pretend anymore that the treasurer of a small town in the Midwest on a civil service salary and no analytical support has the same level of sophistication as a specialized hedge fund.”  Bloomberg
· GS – SEC attorney David J. Gottesman may join in the case against GS; The SEC yesterday asked U.S. District Judge Barbara Jones in Manhattan to admit Gottesman to the case – Bloomberg
· C – the co will split its CitiFinancial consumer-lending unit into two groups (one containing its branches and the other will service loans in certain markets) to better position it for a potential sale; the co will wind up closing 320 branches (WSJ)
· SNV - announced the completion of the consolidation of 28 of its 30 bank charters operating in Georgia, Alabama,Florida, Tennessee and South Carolina, under one Georgia charter. Consolidation of two separately-chartered Tennesseebanks in Nashville and Memphis is expected by June 30, 2010.
· BAC – this hit during trading - SEC Inspector General David Kotz said his office is expanding its probe to analyze the circumstances surrounding the revised settlement between BoA and the SEC over the Merrill deal (Reuters)
· HCC - its Board of Directors has authorized the repurchase of up to an aggregate of $300 million of its common stock.
· Fitch Ratings says that the latest QIS5 Solvency II regulatory capital proposals may increase capital requirements for European insurers compared to earlier proposals.  DJ
· Barclays to buy Sweden’s Tricorona for £98m in cash.  Deal will extend its carbon trading business  FT
· FITB – notes heavy put buying in the stock -
· Trust Banks – impact from the financial regulatory overhaul – comments from V Juneja - We expect the Senate reform bill to have some negative impact on the trust banks (BK, NTRS and STT), but likely less than traditional banks because of potential carve-outs. Estimates for impact on trust banks are very uncertain, more so than for traditional banks because of the greater likelihood of carve-outs espoused by the House Financial Services Committee and lack of any details on securities lending and asset management as regards investments which may be impacted. There could be carve-outs for key issues such as the FDIC assessment base and Volcker rule for several items such as prop trading and treatment of unregistered funds. TRUPs may be grandfathered or excluded from Tier 1 only for banks with assets of more than $250 bil. And elimination of the Lincoln amendment would remove another hurdle. Lastly, potential downgrade by debt rating agencies would hurt long term debt costs. Trust banks could modestly benefit from providing more products with increased regulatory requirements for asset managers.   
· UK banks - Government Exit Strategies - Looking at the Options - Despite comment that disposals of the stakes are not imminent, with the change of government we believe the breakeven prices are less relevant, esp if the government were to structure a transaction similar to the British Gas & BT privatizations - While stocks have come off their highs on the back of sovereign concerns and both Lloyds and RBS are now trading on 0.9x 11E P/NAV, we remain UW on both. Fundamentally, we see NAV per share as a ceiling rather than as a floor as we currently struggle to see returns exceeding CoE. TP for Lloyds remains unch at 50p with modest earnings changes (-1.1% 2012E) and unch at 42p for RBS, where we raise 12E EPS by 6.7% on reduced loss estimates for non core activities.  Given the strain on public finances we believe the likelihood of a specific tax charge along the lines of a wholesale liability tax is high and could remove c.10-20% of sector earnings, raising a much needed £5-10bn. Beyond that, further regulatory changes will likely have to be pushed back, as we believe regulation goes hand in hand with economic stability.   

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