The banking industry had a tumultuous week, a couple of weeks ago, as concerns over foreclosure practices escalated and JPMorgan Chase reported better-than-expected earnings boosted in part by lower provisioning and reserve releases.
As officials from all 50 states announced a joint investigation into the foreclosure practices of major US lenders, the Financial Select Sector SPDR fell more than 2 percent. Shares of Bank of America (BoA) stock plunged to a new 52-week low of $11.74 during the trading session after a report from hedge fund Branch Hill Capital indicated the bank had as much as $74 billion in exposure to mortgage-security buybacks from mortgage giants Freddie Mac and Fannie Mae.
In other news, the ex-CEO of Countrywide, Angelo Mozilo, settled a civil fraud and insider trading case with the Securities and Exchange Commission, agreeing to repay $45 million in earned profits and another $22.5 million in civil penalties. The suit, filed in June 2009, alleged that Mozilo and two other executives at BoA-owned Countrywide "failed to disclose to investors the significant credit risk that Countrywide was taking on as a result of its efforts to build and maintain market share." The civil case also accused Mozilo of using inside information to unload his large stake in the company under the pretense of 10b5-1 plans, a type of pre-arranged trading plan. Considered the poster child of the subprime mortgage crisis, Countrywide was one of the nation's top subprime lenders when the financial crisis started, and BoA is still paying for that to this day. JP Morgan Chase got the bank earnings season started on Wednesday by reporting third-quarter profits of $4.4 billion, or $1.01 per share, exceeding analysts' forecasts. The firm was unable to escape lower revenue in its investment banking division, however, or the continuing challenges it faces in relation to mortgages.
In other financial services news, TCF Financial took a stand against the government by filing a lawsuit against the Federal Reserve. The suit challenges the constitutional legitimacy of recently enacted financial reform measures that place limitations on debit card interchange fees under the so-called Durbin Amendment, stating that the rule gives an unfair advantage to smaller, community banks that are exempt.
Banks earnings season kicked into gear this month, as Citigroup released third-quarter earnings, followed by Bank of America's earnings report and Wells Fargo's numbers.
