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Major banks’ efforts to settle mortgage lawsuits remained the key trend in the last five trading days. The notion of these settlements curtailing further legal costs spread some positivity.

Moreover, the optimism was somewhat supported by the restructuring and streamlining initiatives announced by some major regional banks. These moves should continue to bolster the banks’ financial performance and drive operational efficiencies going forward.
 
Recap of the Week’s Most Important Happenings:

1. SunTrust Banks, Inc. (STI - Analyst Report) has announced the resolution of one more mortgage-related probe within 20 days of announcing a settlement pertaining to faulty mortgage servicing as well as lending and foreclosure practices in the pre-crisis period. The latest settlement by SunTrust Mortgage, Inc., the mortgage division of the company, resolves the allegations of misleading customers seeking loan modifications under the Home Affordable Modification Program (HAMP).

SunTrust had revealed that it was under probe for the above-mentioned allegations in Aug 2013. Owing to this settlement, the company will incur a pre-tax charge of $204 million in second-quarter 2014. Also, the company revealed separately in the regulatory filings that following the divestiture of its asset management subsidiary RidgeWorth Capital Management, Inc., it will be recording a pre-tax gain of $105 million. Hence, the bank will incur a charge of 13 cents per share in the second quarter as a result of the combined financial impact of these two transactions.

2. U.S. Bancorp (USB - Analyst Report) recently finalized a settlement with the U.S. Department of Justice (DOJ) worth $200 million. The settlement is related to the bank’s misrepresentation of government-backed mortgages originated by it. Notably, prior to the aforementioned settlement agreement with the DOJ, U.S. Bancorp sold 3.0 million shares of the Class B common stock of Visa Inc., which recorded a net pretax gain of $214 million in the second quarter. The sale of Visa Class B shares is expected to neutralize the DOJ settlement charges, thereby not affecting earnings per share in the second quarter. (Read more: U.S. Bancorp Pens $200M Settlement with U.S. DOJ)

3. JPMorgan Chase & Co. (JPM - Analyst Report), in keeping with its strategy of streamlining operations and focusing on core businesses, has announced the divestiture of yet another unit. The company will be vending off its Corporate Dealing Services business to U.K.-based The Equiniti Group. The deal is expected to be closed by Aug 2014. (Read more: JPMorgan to Divest Corporate Dealing Services Biz)

4. Citigroup Inc. (C - Analyst Report), in tune with its efforts to boost the energy trading business, has taken over Deutsche Bank AG’s (DB) power trading books. These power trading books cover the ERCOT region in Texas and the East and Midcontinent. (Read more: Citigroup Acquires Deutsche Bank's U.S. Power Trading Books)

5. JPMorgan CEO Jamie Dimon has been diagnosed with throat cancer.  The condition is curable, with radiation and chemotherapy commencing soon at New York’s Memorial Sloan Kettering Hospital. Following the news on Jul 2, shares of JPMorgan declined nearly 1.4% on Wednesday. Although the news release does not convey anything worrying, the serious health issues of the successful CEO made investors skeptical. (Read more: Is JPMorgan CEO's Cancer Diagnosis a Concern?)

Price Performance

The performance of major regional banking stocks was on an upswing with their efforts to minimize legal hassles. Moreover, the actions being undertaken by some major regional banks to deal with fundamental pressure somewhat added fuel to the fire.
 

Company

  Last Week

  Last 6 months

JPM

-0.1%

-1.5%

BAC

4.6%

-2.2%

WFC

0.2%

18.5%

C

2.3%

-9.6%

MTB

0.7%

9.7%

BBT

1.8%

9.6%

USB

0.5%

10.0%

PNC

0.7%

18.3%


In the last five trading days, Bank of America Corp. (BAC - Analyst Report) and Citigroup were the major gainers, with their share prices increasing 4.6% and 2.3%, respectively. On the other hand, JPMorgan showed a marginal decline.

Over the last 6 months, Wells Fargo & Co. (WFC - Analyst Report) and The PNC Financial Services Group, Inc. (PNC - Analyst Report) were the top performers, with their shares advancing 18.5% and 18.3%, respectively. However, Citigroup witnessed a 9.6% price decline over the same time frame.

What Next in the Major Regional Banks Universe?

Wells Fargo is scheduled to kick-start bank earnings on Jul 11.

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