Litigation concerns dominated the sector in the last five trading days as it got revealed that the Federal Housing Finance Agency (FHFA) is contemplating suing big banks and other mortgage servicers for over-charging insurance fees. With the major regional banks already facing considerable legal headwinds, this speculation came as a disappointment for the investors.
Nevertheless, the pessimism was somewhat offset by the restructuring and streamlining initiatives announced by some major regional banks during the past one week. These efforts will likely bolster the banks’ financial performance and drive operational efficiencies going forward.
Recap of the Week’s Most Important Happenings:
1. The FHFA is considering suing banks and other mortgage servicers for over-charging Fannie Mae and Freddie Mac on force-placed insurance, according to a number of sources familiar with an internal report. Though the regulatory authority will be deciding about filing the lawsuits in the next 12 months, the chances of winning the same are high. (Read More: FHFA to Sue Banks for Over-charging Insurance Fees?)
2. Citigroup Inc. (C - Free Report) , in an attempt to streamline its international operations, announced the divestiture of its consumer banking business in Spain. The operations will be acquired by Madrid-based Banco Popular. (Read More: Citigroup to Divest Spanish Consumer Banking Biz)
3. U.S. Bank National Association, the lead bank of U.S. Bancorp (USB - Free Report) , doubled its deposit market share in Chicago with the acquisition of the Chicago branch network of the Charter One Bank franchise. This acquisition is part of the company’s strategy to deploy excess capital and strengthen its position in Chicago. (Read more: U.S. Bancorp Acquires Chicago Branch Network)
4. Job cuts were announced by Bank of America Corporation (BAC - Free Report) in its Legacy Asset Servicing division. The company issued layoff notices to 540 Charlotte employees. (Read more: Bank of America Slashes 540 Mortgage Jobs in Charlotte)
5. The Federal Reserve extended the deadline for resubmission of revised capital plan for Citigroup and the U.S. units of three foreign banks. This will provide Citigroup more time to work on the planning weaknesses pointed out by the Fed. (Read more: Fed Extends Capital Plan Resubmission Deadline)
The performance of major regional banking stocks remained subdued owing to the news of probable FHFA lawsuit. However, the efforts being undertaken by some banks to deal with fundamental pressure somewhat mitigated the negative impact.
In the last five trading days, U.S. Bancorp and Wells Fargo & Company (WFC - Free Report) were the major losers, with their share prices declining 1.6% and 1.0%, respectively.
Over the last 6 months, Wells Fargo and The PNC Financial Services Group, Inc. (PNC - Free Report) were the top performers, with their shares advancing 17.9% and 15.7%, respectively. However, Citigroup witnessed a 9.4% price decline over the same time frame.
What Next in the Major Regional Banks Universe?
Since there is no major development expected on the economic front next week, the sector performance is not expected to change significantly.
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