The Morning After Is a Tough One for Banks Today
Dec 19th 2013 7:33PM
Updated Dec 19th 2013 7:34PM
So, finally, it's in front of us. The endlessly discussed and debated taper has at last been put into motion, with the Fed saying it will shave its bond-buying activity by $10 billion per month, to $75 billion. Yesterday's rally in stock prices was the market reacting to the Fed's thumbs-up vote of confidence on the economy. And, to a lesser extent, its sigh of relief that the reduction is going to be mild and gradual.
Today, though, is the hangover following the big party. Like the broader market, stocks of the big banks are all either lagging the Dow or barely outpacing it a day after bouncing high following the news. Bellwether Bank of America is leading this rather bleary group, advancing a few cents on the day. In percentage terms, this is just barely ahead of the index.
Outside of the taper, there isn't much news of note to drive the company's stock, save for the involvement of its busy Merrill Lynch investment banking unit in the big Facebook secondary offering. Merrill is one of four lead underwriters of the issue, which is expected to raise something in the neighborhood of $3.9 billion. Facebook's a hot stock and it's a good time to sell, so look for Bank of America to pocket handsome fees for helping it to do so.
Ditto for JPMorgan Chase's IB arm J.P. Morgan, the second of the four lead underwriters. Shares of Morgan are trading essentially flat on the day, perhaps because the firm's nearly made it through the week without being slammed by a raft of fresh multibillion-dollar lawsuits. For the bank this year, that has been the rule rather than the exception; over the last few days, the only high-profile new legal blow has been the state of Mississippi accusing the bank of falling afoul of the Consumer Protection Act in dealings with its credit card holders.
This isn't the first time Morgan has been sued over such practices, and it won't be the last. Investors are well used to the bank's legal tribulations, most likely the key reason why the stock wasn't battered on the news.
Meanwhile, there's happier news over at Wells Fargo , at least as far as its personnel are concerned. A report from Bloomberg today has it that, starting next year, the bank will ramp up the bonus scheme for its financial advisors, in some cases, quite significantly. Brokers bringing in at least $2.1 million in business will be eligible to earn as much as an 11% bonus payout, up from the current 8.5%, while those reaping $300,000 might get 8.25% -- over four times the current level of 2%.
That's a potential difference of tens of thousands of dollars. It's a smart move by the bank to keep its best producers, and it's particularly well timed considering that other banking incumbents are looking for ways to save costs rather than open their coffers wider. Wells Fargo currently has more than 15,000 financial advisors, and this is a fine way to help retain the elite of that bunch and lure new talent.
On the subject of saving costs, Citigroup's retail unit Citibank has inked a deal with BB&T to sell 21 of its branches in Texas to the smaller firm. The price is $36 million, for which BB&T will receive all Citibanks in the Austin, Bryan-College Station, and San Antonio areas. All told, Citibank will hand over $1.2 billion in deposits and $134 million in loans, with the transaction expected to close in Q2 2014.
For the most part, though, today has been a relatively quiet day. The taper rally was a robust, lively party; it's now time for banks to rest a bit and recover from the celebration.
The article The Morning After Is a Tough One for Banks Today originally appeared on Fool.com.Fool contributor Eric Volkman owns shares of Facebook. The Motley Fool recommends and owns shares of Bank of America, Facebook, and Wells Fargo. It also owns shares of Citigroup and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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