Today is one of those days when an investor is hard-pressed to find a central theme to bank news. From legal cases to disappointing news from the housing sector, the Big Four are all over the map. Despite the mixed news, there's a small lesson to be gleaned from each news story.
A whale of a tale
JPMorgan Chase (NYSE:JPM) grabs the top headlines today as two of its former traders are charged criminally for their parts in last year's London Whale trading debacle. The Whale himself is not being charged with anything thanks to his cooperation with authorities in charge of the investigation. The two being charged, Javier Martin-Artajo and Julien Grout, worked in the chief investment officer's office in London last year, and New York prosecutors are charging them with conspiracy, wire fraud, and making false filings. The SEC is also filing a civil suit against the two traders. The charges stem from Martin-Artajo and Grout's reports to management of smaller losses than those that were actually sustained from the failed Whale trades.
The criminal charges for conspiracy in the London Whale case may set a new precedent for Wall Street traders who falsify information about losing trades, whether it be directly to investors or simply to management. Since several federal authorities are investigating JPMorgan over the case and over its involvement in commodities pricing manipulation, there may be further criminal charges in the future. The current case brings a new level of investor uncertainty to the bank's doorsteps that had been largely avoided during and after the financial crisis.
Exit, stage left
Citigroup (NYSE:C) has announced that it will be exiting its alternative investment business to comply with the Volcker rule included in the Dodd-Frank financial reform bill. On top of the increased regulatory pressure on banks, the operations in question have failed to perform profitably, adding to the bank's incentive to shed those assets. The bank began making such moves to exit alternative businesses in 2009 and has since shuttered both private equity and hedge fund units. Citi's changes so far have been adequate to comply with the regulations, but it will continue to make such exits as it deems necessary or advantageous.
For investors, the decision to shed its alternative operations should be a welcome action. Besides reducing some regulator scrutiny, the bank is divesting itself of a segment that has failed several times to acquire profitable assets, such as its failed $12.5 billion deal for the Pennsylvania Turnpike in 2008. With the assets either being sold or rolled into a new entity, Citi can refocus its attention on more traditional banking and investment operations, which is the goal of CEO Michael Corbat.
Good day for riding
Bank of America (NYSE:BAC) is just one of the companies getting some good news from the latest series of 13-F filings, which show how money managers changed positions in the past quarter. And thanks to David Tepper's Appaloosa Fund, B of A headed up today. Tepper increased his holdings in the bank by almost 4 million shares during the second quarter, a big confidence boost for B of A investors.
The past month has been difficult for investors, with mixed economic news generating more questions than answers, so the new 13-F filings give some concrete information on what some successful money managers are putting their money in. Though it's not recommended that an investor follow any particular hedge fund manager based on 13-F reportings, it can be helpful to see how a professional has weighed the pros and cons of a business and chosen to act. For Bank of America and its investors, the filings also give a brief reprieve from the nearly constant news headlines about federal investigations and other legal matters.
A big drop
Wells Fargo (NYSE:WFC) investors may be reeling today, after the latest report on new mortgage loan applications showed that activity for new loans fell 4.7% last week. Though the trend had been falling for some time, last week's 0.2% rise was a glimmer of hope for bank investors who have put a lot of weight on new loan generation, since the banks receive fee income from buyers not only during the origination process, but also when they sell them afterwards. Since Wells is the nation's largest mortgage originator, with almost 30% of the market in 2012, the more conventional bank would be hit hardest by this news. Though the bank did experience an uptick in origination during the second quarter, it had be explicit in noting that its pipeline was much lower than it had been when exiting the first quarter, and that there may be a slowdown before the end of the year.
For Wells investors, this data is much more important to follow than if you were a Citi or JPMorgan investor. Since Wells is the largest conventional bank in the nation, it has a lot more pressure to capture larger segments of the loan market than the other members of the Big Four that use large investment banking arms to generate additional revenue.