Student Transportation sold for $7.50 a share

Student Transportation to be acquired by investors led by CDPQ

Student Transportation sold for $7.50 a share. Stockwinners.com
Student Transportation sold for $7.50 a share.

Student Transportation (STB) announced that it entered into a definitive agreement with a company sponsored by Caisse de depot et placement du Quebec and Ullico Inc. pursuant to which the Purchaser Group will acquire all of the company’s outstanding common shares by way of a plan of arrangement under the Business Corporations Act.

Student Transportation Inc. (STB) provides school bus transportation and management services to public and private schools in North America. The company offers contracted, managed, special needs transportation, direct-to-parent, and charter services. It operates approximately 290 contracts with a fleet of 13,000 vehicles.

Shareholders of STI will receive $7.50 per common share in cash, representing a 27% premium to the 20-day volume weighted average price per common share on the Toronto Stock Exchange for the period ending February 27, 2018, based on an exchange rate of $1.2776 Canadian dollars per U.S. dollars as of February 27, 2018.

Holders of STI’s 6.25% Convertible Unsecured Subordinated Debentures will receive the product of $7.50 and the number of Common Shares that the holders would be entitled to receive upon the conversion of their 2013 Debentures in accordance with their terms immediately following the closing date of the Arrangement, including those issuable upon a “Cash Change of Control”, plus the sum of accrued and unpaid interest on such debentures up to but excluding the Closing Date and the interest that would have otherwise accrued from and including the Closing Date to but excluding 32 days thereafter.

Holders of STI’s 5.25% Convertible Unsecured Subordinated Debentures will receive the product of $7.50 and the number of Common Shares that the holders would be entitled to receive upon the conversion of their 2016 Debentures in accordance with their terms immediately following the Closing Date, including those issuable upon a “Cash Change of Control”, plus the sum of accrued and unpaid interest on such debentures up to but excluding the Closing Date and the interest that would have otherwise accrued from and including the Closing Date to but excluding 32 days thereafter.


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CVB Financial, Community Bank to merge in $878.3M deal

CVB Financial, Community Bank to merge in $878.3M deal

CVB Financial, Community Bank to merge. Stockwinners.com
CVB Financial, Community Bank to merge.

CVB Financial (CVBF) and Community Bank announced that they have entered into an agreement and plan of reorganization and merger, pursuant to which Community will merge with and into Citizens in a stock and cash transaction valued at approximately $878.3M, based on CVBF’s closing stock price of $23.37 on February 23, 2018.

The merger will increase Citizens’ total assets to approximately $12B on a pro forma basis as of December 31, 2017.

CVBF expects the merger to result in approximately 12% earnings per share accretion in 2019, excluding one-time transaction costs. CVBF anticipates the merger to be approximately 11% dilutive to tangible book value per share at closing with an earn back period of approximately 4.9 years and an internal rate of return of greater than 15%.

Additionally, at closing, Marshall V. Laitsch, Chairman of the Board of Community, will join the Board of CVBF. Community Bank, headquartered in Pasadena, California, had approximately $3.7B in total assets, $2.7B in gross loans and $2.9B in total deposits as of December 31, 2017.

Community has sixteen branch locations throughout the greater Los Angeles and Orange County areas. Pursuant to the Agreement, each share of Community common stock, including unvested restricted stock units, will receive a fixed consideration consisting of 9.4595 shares of CVBF common stock and $56.00 per share in cash.

CVBF will pay aggregate consideration of approximately 30.0 million shares of CVBF common stock and $177.5M in cash, subject to purchase price adjustment provisions and other terms set forth in the Agreement.

Giving effect to the merger, Community shareholders would hold, in aggregate, approximately 21.4% of CVBF’s outstanding common stock following the merger. Upon completion of the merger, Community will operate as Citizens Business Bank and will continue to deliver the high-touch level of service that its customers expect, with an expanded branch and ATM network and a broad range of products and services, including expertise in personal, small business, private and corporate banking, as well as treasury management and trust services.

The boards of directors of Community, CVBF and Citizens have approved the proposed merger.

The closing of the merger is subject to customary regulatory approvals and the approval of CVBF and Community shareholders, and is anticipated to occur in the third quarter of 2018.


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Barron’s in bullish on Citi, bearish on GE

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue mentions several names:

Stockwinners offers Barron's review of Stockwinners offers stocks to buy, stocks to watch, upgrades, downgrades, earnings, Stocks to Buy On Margin
Stockwinners offers Barron’s review of stocks to buy, stocks to watch

BULLISH   MENTIONS: 

Hovnanian (HOV) stock too cheap to ignore- Hovnanian Enterprises offers an interesting speculative bet, because more than a decade’s worth of problems are reflected in the price, Brett Arends writes in this week’s edition of Barron’s. A successful resolution of its legal issues, a corporate turnaround, a takeover, or a continued recovery in the U.S. real estate market are all potential catalysts, he adds.

JPMorgan, Walmart cash flow yields exceed dividend yields – The cash flow yields of JPMorgan (JPM), Johnson & Johnson (JNJ), Walmart (WMT), Pfizer (PFE), Cisco (CSCO), AbbVie (ABBV), PepsiCo (PEP), 3M (MMM), Bristol-Myers (BMY), United Technologies (UTX), Texas Instruments (TXN) and Abbott Laboratories (ABT) exceed their dividend yields, a good signal for dividend coverage and growth, Lawrence Strauss writes in this week’s edition of Barron’s.

Alphabet, Citi well positioned for later stages of market rally – It is time for investors to think about how and when bull markets end, Jack Hough writes in this week’s edition of Barron’s. Groups to favor now include financials, which benefit from rising interest rates, and industrials, he notes, adding that technology still looks attractive. Alphabet (GOOG; GOOGL), Lam Research (LRCX), Citigroup (C), and Cummins (CMI) are all well positioned for the later stages of a long market rally, Hough contends.

Bears, bulls battle over Under Armour – In a follow-up story, Barron’s says that Under Armour (UA) reported fourth quarter revenue that beat Wall Street’s estimate, but is difficult to tell whether the revenue upside represents a turning point for the business. Bulls and bears both found something to support their arguments, as revenue increased but gross margin declined while inventories swelled and store count rose 22%, the report notes.

BEARISH  MENTION:

General Electric stock could drop another 10% – General Electric (GE) lost $6B in 2017 after a series of charges and impairments, cut its dividend by 50%, and its accounting is under investigation by the Securities and Exchange Commission, but lately it has been attracting fresh attention from value-oriented investors, Andrew Bary writes in this week’s edition of Barron’s. Nonetheless, the stock is not a bargain and could drop another 10% or more, he contends


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HSBC to pay more than $100M to resolve fraud charges

HSBC agrees to pay more than $100M to resolve fraud charges 

HSBC to pay more than $100M to resolve fraud charges. Stockwinners.com
HSBC to pay more than $100M to resolve fraud charges

HSBC Holdings (HSBC) has entered into a deferred prosecution agreement and agreed to pay a $63.1M criminal penalty and $38.4M in disgorgement and restitution to resolve charges that it engaged in a scheme to defraud two bank clients through a multi-million dollar scheme commonly referred to as “front-running,” the DOJ confirmed.

The DPA, which was filed in connection with a two-count criminal information charging wire fraud in the United States District Court for the Eastern District of New York, is pending review by the Court.

According to HSBC’s admissions, on two separate occasions in 2010 and 2011, traders on its foreign exchange desk misused confidential information provided to them by clients that hired HSBC to execute multi-billion dollar foreign exchange transactions involving the British Pound Sterling.

After executing confidentiality agreements with its clients that required the bank to keep the details of their planned transactions confidential, traders on HSBC’s foreign exchange desk transacted in the Pound Sterling for the traders and HSBC’s own benefit in their HSBC “proprietary” accounts.

In total, HSBC admitted to making profits of approximately $38.4M on the first transaction in March 2010, and approximately $8M on the Cairn Energy transaction in December 2011.

HSBC did not receive credit for voluntarily disclosing the misconduct.

HSBC received substantial cooperation credit because, although as detailed in the DPA, the bank’s initial cooperation with the government’s investigation was deficient in certain respects, after being notified of the Department’s concerns, HSBC changed course and its cooperation improved substantially.


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Watch these bank earnings

What to watch in bank space earnings reports

What to watch in bank earnings. Stockwinners.com
What to watch in bank earnings.

Bank of America (BAC) and Goldman Sachs (GS) are scheduled to report quarterly results on January 17, while Morgan Stanley (MS) is expected to report on January 18.

What to watch for:

1. TAX REFORM:

Goldman Sachs estimates that the enactment of the new tax legislation will result in a reduction of approximately $5B in the firm’s earnings for Q4 and year ending December 31, 2017, approximately two-thirds of which is due to the repatriation tax.

The remainder includes the effects of the implementation of the territorial tax system and the re-measurement of U.S. deferred tax assets at lower enacted corporate tax rates.

Earlier this month, Morgan Stanley (MS) said it also estimates the net income for the quarter ending December 31, 2017 will include an aggregate net discrete tax provision of approximately $1.25B, comprised of an approximate $1.4B net discrete tax provision as a result of the enactment of the Tax Cuts and Jobs Act, primarily from the re-measurement of certain net deferred tax assets using the lower enacted corporate tax rate, partially offset by an approximate $160M net discrete tax benefit, primarily associated with the re-measurement of reserves and related interest relating to the status of multi-year Internal Revenue Service tax examinations.

2. CRYPTOCURRENCY:

On December 14, Bloomberg reported that Goldman Sachs is seeking a 100% margin on some bitcoin future trades deterring some customers from looking to clear their trades through the bank and resulting in some taking their business elsewhere.

A week later, the publication said the bank was establishing a trading desk to make markets in digital currencies such as bitcoin. The company intends to get the business running by the end of June, if not earlier, the report added.

Also last month, Morgan Stanley said in a regulatory filing that it had purchased an 11.4% stake in Overstock (OSTK), which launched cryptocurrency trading with its tZERO subsidiary.

3. FAVORABLE OUTLOOK:

On November 29, JPMorgan analyst Kian Abouhossein raised his price target for Goldman Sachs to $270 from $263 and called it his top investment banking pick for 2018.

The analyst said he is more positive around the strength of the franchise and believes its fixed income, currencies and commodities business revenue growth opportunity of $1B-plus is more likely to be achieved. Goldman has shown “excellent progress” when it comes to delivering shareholder value, #Abouhossein contended.

Last month, BofA/Merrill analyst Michael #Carrier added Goldman Sachs to the U.S. 1 List, citing an increasing favorable outlook with rising GDP growth, favorable risk/reward, low expectations, and potential catalysts from de-regulation, tax reform, and increased volatility.

Carrier reiterated a Buy rating on the stock and raised his price target on the shares to $300 from $290.

4. BREXIT

On November 20, Goldman Sachs CEO Lloyd Blankfein said the bank will have two EU hubs, in Frankfurt and Paris, post-Brexit, according to Reuters. “We will have more employees on the continent. Some, if they want to, would come from London, we will hire others,” Blankfein said.

“Brexit pushes us to decentralize our activities. In the end, it’s the people who will largely decide where they prefer to live.”


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Bitcoin hits an all time high, thanks to Square

Bitcoin hits record high amid Square inclusion on Cash app

Bitcoin hits $8000. See Stockwinners.com for details

Bitcoin hit a new record high on Sunday, breaking the $8,000 threshold for the first time.

WHAT’S NEW:

Bitcoin reached $8,121.56 on Monday at 12:25 p.m. London Time after breaking the $8,000 value on Sunday, CNBC reported, citing the Coindesk website. The high comes after a sell-off on November 12, in which the cryptocurrency’s price dropped to roughly $5,500, resulting from the cancellation of a potential November 16 upgrade called SegWit2X, which was designed to increase transaction speeds to the bitcoin network.

Positive news including favorable regulation in Japan, increasing interest from institutional investors and planned new market products including CME Group’s (CME) bitcoin future contracts have supported the bitcoin price.

SQUARE TESTS BITCOIN

On Wednesday, Forbes reported Square (SQ) is now offering users the option to buy, sell or hold Bitcoin on its Cash app.

“We’re always listening to our customers and we’ve found that they are interested in using the Cash App to buy Bitcoin,” the spokesperson said.

“We’re exploring how Square can make this experience faster and easier, and have rolled out this feature to a small number of Cash App customers. We believe cryptocurrency can greatly impact the ability of individuals to participate in the global financial system and we’re excited to learn more here.”

CREDIT SUISSE RAISES SQUARE PRICE TARGET

Credit Suisse analyst Paul Condra raised his price target for Square to $37 from $31 following its announcement that it is piloting bitcoin sales via its Square Cash app.

While the analyst is positive on Square’s strategy, to the extent it confers legitimacy on Bitcoin and prompts adoption by other providers, the biggest beneficiary may be the crypto-asset industry. He added that he believes there is low risk that bitcoin will disrupt mainstream payments as the cryptocurrency requires traditional bank accounts, it has fees for consumers to send it, merchant knowledge of bitcoin is very low and buyers are more interested it on holding it than spending it.

The analyst estimates that if Square can attract 10M bitcoin buyers over 10 years, it could drive an incremental $30M in revenue. Condra reiterated a Neutral rating on the shares.

SUNTRUST SAYS BITCOIN “GAME-CHANGING” FOR SQUARE

Suntrust Robinson analyst Andrew Jeffrey said the news of Square offering Bitcoin on its Cash app is bullish, if not game changing, for Square as it creates Cash app differentiation and supports potential monetization.

He added the move is also bullish for Bitcoin adoption as it eliminates friction in buying/selling the cryptocurrency via a P2P app.

Jeffrey also said a broader launch of the feature may boost new user growth for the app, drive increased engagement among existing users and allow Square to monetize Square Cash through transaction fees.

While the analyst believes the news is a slight negative to legacy ecosystem participants, he does not see mainstream Bitcoin adoption in the “investable horizon.” Jeffery has a Hold rating on Square.

Standpoint Research

Standpoint Research analyst Ronnie Moas raised his 2018 price target for bitcoin to $14,000 from $11,000. The price just crossed $8,180 and is now split-adjusted at $9,518 when you factor in the August fork spinoff bitcoin cash and the October fork spinoff bitcoin gold at $158, Moas writes in an email. The analyst sees the price of bitcoin hitting $60,000 five years. He says this is reached by 0.5% of the global total money invested currently in cash, stocks, bonds and gold going into the cryptocurrency.

PRICE ACTION

Bitcoin rose 2.1% to 8,198.99 in morning trading, while Square (SQ) was up 3.1% to $45.56.


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Atlantic Coast Financial sold for $145 million

Ameris Bancorp to acquire Atlantic Coast Financial in $145M transaction

Atlantic Coast Bank sold for $145 million. See Stockwinners.com for details

Ameris Bancorp (ABCB) announced the signing of a definitive merger agreement under which Ameris will acquire Atlantic Coast Financial (ACFC), the parent company of Atlantic Coast Bank, Jacksonville, Florida.

Upon completion of the transaction, the combined company will have approximately $8.6B in assets, $6.9B in loans, $6.6B in deposits and a branching network across four states.

Under the terms of the definitive merger agreement, each share of Atlantic Coast common stock will be converted into the right to receive 0.17 shares of Ameris common stock and $1.39 in cash.

The transaction is valued at approximately $145M in the aggregate based on Ameris’ closing stock price of $47.30 as of November 16.

The merger agreement has been unanimously approved by the board of directors of each company.

The transaction is expected to close in the second quarter of 2018 and is subject to customary closing conditions, including the receipt of regulatory approvals and the approval of the stockholders of Atlantic Coast.


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Bank stocks to watch

What to watch in bank space earnings reports

JPMorganChase on Stockwinners.com

JPMorgan (JPM) and Citigroup (C) are scheduled to report quarterly results on October 12, while Wells Fargo (WFC) is scheduled to report on October 13.

What to watch for:

1. OUTLOOK:

During its last earnings call, JPMorgan said it sees 2017 average core loan growth of about 8%, 2017 net interest income up over $4B year over year, 2017 adjusted expense of about $58B, and 2017 net charge-offs of about $5B.

On September 12, JPMorgan’s Dimon added that trading revenue should be down about 20% in Q3.

Meanwhile, back in July, Citi said it was “on track” to increase return on capital and that it expects continued year over year revenue growth in retail banking, excluding mortgage, as well as modest organic growth in cards.

Meanwhile, mortgage should continue to be a headwind in Q3, the company noted. Later in the month, Citi CEO Michael Corbat said he sees earnings per share approaching $9.00 in 2020.

During Wells Fargo last earnings call, the bank said it is targeting $2B expense reduction by year-end 2018.

Additionally, the bank plans to close about 450 branches in 2017-2018, and expects to increase Q3 dividend to 39c per share.

Last month, Wells Fargo said it sees net interest income up low to mid-single digits in 2017, with loan growth in Q3 expected to be impacted by continued decline in auto loans, run off of the junior lien mortgage portfolio, and a slower and more competitive commercial and CRE lending environment.

2. VALUATION, LACK OF CATALYSTS:

Back in July, #Berenberg analyst James Chappell downgraded Wells Fargo to Sell saying the bank’s competitive advantages have been eroded. Wells has become “too big to differentiate itself” from wider market trends and deliver the expected growth, Chappell contended.

A few days later, BMO Capital analyst James Fotheringham cut his rating for Citi to Market Perform based on valuation and lack of catalysts.

Last month, JPMorgan also saw a rating change, with Deutsche Bank analyst Matt O’Connor downgrading the stock to Hold as he sees net interest income growth slowing and credit costs inching up as the Fed raises short rates and the yield curve flattens.

Further meaningful outperformance of JPMorgan shares will be harder amid increased competition within investment banking and trading as well as slowing loan growth, he contended. 3.

UPSIDE POTENTIAL

Late July, Andrew Bary wrote on Barron’s that Citi could rise by 50%, or hit $100, saying he sees upside ahead as it offers a low valuation and what could be the highest earnings growth rate among its peers in upcoming years.

Two weeks later, Wells Fargo analyst Mike Mayo resumed coverage of Citi with an Outperform rating, calling it his top pick in Large-Cap U.S. Banks. Mayo expects the stock to double in four-to-five years.

Meanwhile, Citi analyst Keith Horowitz argued that now is the time to buy Wells Fargo, telling investors Wells Fargo’s business improved, not broken. The company’s issue is an “aggressive sales culture encouraged the wrong behavior leading to strong account generation,” which had an immaterial impact to earnings, Horowitz added. 4.

WELLS TO REMEDIATE CUSTOMERS

On July 28, Wells Fargo announced a plan to remediate auto loan customers of Wells Fargo Dealers Services who may have been financially harmed due to issues related to auto Collateral Protection Insurance policies.

This month, the bank also announced plans to reach out to all home lending customers who paid fees for mortgage rate lock extensions requested from September 16, 2013, through February 28, 2017, and to refund customers who believe they should not have paid those fees.


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Barron’s is bullish on WalMart, bearish on Papa John’s

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue mentions several names:

Stockwinners offers Barron's review of Stockwinners offers stocks to buy, stocks to watch, upgrades, downgrades, earnings, Stocks to Buy On Margin

BULLISH  MENTIONS

Wal-Mart, BlackRock attractive amid seasonal market volatility – September and October may bring seasonal volatility that could push stocks around, Steven Sears writes in this week’s edition of Barron’s, while recommending that rather than just trading the swoons, one should focus on companies with indestructible, “cockroach-like qualities.” Some nearly indestructible stocks seem to be Wal-Mart (WMT) and BlackRock (BLK), the publication notes.

Wall Street may want to look at Japan – Investors worried about valuations and an impending correction on Wall Street may want to take a look at Japan, as its macroeconomic fundamentals have not looked this good in years, Assif Shameen writes in this week’s edition of Barron’s. Honda (HMC) and Sony (SNE) hold attractions, the publication noted.

Gartner Inc. (IT) could earn $8 a share of free clash flow in 2019, and potentially could trade 20 times or more to at least $160, Andrew Peck, a fund manager at Baron Capital Management, tells Barron’s. The tech research and advisory firm closed at $120.79 on Friday. TransUnion (TRU), which closed at $47.81, could rise to the mid $60s by 2019 as it expands its data products from credit to health care, Peck says. Online travel giant Priceline Group Inc. (PCLN), which closed at $1,850 on Friday, could rise to $2,500.

Nathan’s Famous trading at 40%-45% discount – Nathan’s Famous (NATH) has gobbled up share in the premium hot-dog market, while its stock has done well, compounding at 17% a year in the past decade, but the stock is not followed by Wall Street analysts and the company is “poorly understood,” Adam Seessel writes in this week’s edition of Barron’s. At a recent $58, Nathan’s trades at a 40%-45% discount to his estimate of intrinsic asset value, he notes.

Most of Harvey insurance money will go to replace flooded cars – A big part of Harvey insurance dollars will go to replace flooded cars, Alex Eule writes in this week’s edition of Barron’s. Wall Street analysts spent the last few days trying to better understand the transfer of wealth from insurance companies to car makers and auto dealers, with investors quick to pounce on their findings, the publication notes. Publicly traded companies that saw their shares rise include Group 1 Automotive (GPI), AutoNation (AN), and Penske Automotive Group (PAG), Eule adds.

Refiner shares probably volatile, long run opportunity – Hurricane Harvey flooded refineries and forced about a quarter of U.S. capacity off-line, but the damage “didn’t faze Wall Street,” and most refining stocks rose afterward, Avi Salzman writes in this week’s edition of Barron’s. While this dynamic may be short-lived, and the refiners could give back those gains in the near-term, in the longer-term, U.S. refining stocks are attractive, and people looking to profit from U.S. energy independence should consider buying them, the publication notes. Publicly traded companies in the space include Delek US (DK), HollyFrontier (HFC), Marathon Petroleum (MPC), Phillips 66 (PSX), Andeavor (ANDV), Valero (VLO) and Western Refining (WNR).

BEARISH  MENTIONS

Papa John’s run of underperformance may continue– Papa John’s (PZZA) is lagging behind the S&P 500 this year and, despite a plan to spend $500M to buy back shares, its run of underperformance may continue as competition hits its plans for growth, Leslie Norton writes in this week’s edition of Barron’s. Competition is everywhere as pizza will increasingly be delivered by Amazon (AMZN) and Uber, she notes, adding also that the choices have expanded dramatically, with chicken nuggets and fries being ordered from McDonald’s (MCD) or soup and a bagel from Panera.

Dialysis providers claim they make no money on patients – Although 88% of dialysis patients are insured by government programs, dialysis providers say they make no money on those patients, Bill Alpert writes in this week’s edition of Barron’s. And if private insurers succeed in cutting payments to dialysis firms, either by refusing subsidized premiums or simply reducing reimbursement rates, DaVita (DVA) and American Renal (ARA) will see their profits contract, he notes. Other dialysis providers include Fresenius Medical Care (FMS).


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Wells Fargo Apologizes to Customers

Wells Fargo completes expanded third-party review of banking accounts

Wells Fargo outlines steps to compensate customers impacted by sales practices

Wells Fargo to close 450 branches. See Stockwinners.com Market Radar for the story.

In the coming weeks, Wells Fargo (WFC) will be taking steps to compensate its retail and small business customers who may have been harmed or impacted by unacceptable retail sales practices within the company’s retail bank.

As Wells Fargo makes things right with customers, these steps also will help the company fulfill its remediation commitments under the sales practices consent orders with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.

These steps include: Beginning communications associated with the company’s $142M class action settlement agreement covering all persons who claim that Wells Fargo opened, without their consent, a consumer or small business checking or savings account or an unsecured credit card or line of credit, and customers who enrolled in certain identity theft protection services, between May 1, 2002 and April 20.

Over the next two months, both Wells Fargo and the court-appointed claims administrator will be sending communications about how to join the class to current and former Wells Fargo customers.

Continuing to work with any customers who contact us with concerns about harm that could have been caused to their credit score by an account opened without their authorization and correcting records for these customers with the credit bureaus.

Customers who inform us of an account they did not authorize that led to increased borrowing costs due to credit-score impact will be eligible for compensation from the class action settlement. Compiling a list of customers who complained to Wells Fargo about an unauthorized account that was opened without their consent.

Those customers will be notified by both Wells Fargo and the court-appointed claims administrator and automatically enrolled in a portion of the class-action settlement. Continuing to offer free mediation services to customers if the company is unable to resolve an issue related to an unauthorized account directly with the customer.

Wells Fargo will continue to offer this service to customers who are not satisfied with any of the outcomes from the steps above.


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Wells Fargo’s Legal Expenses Soar

Wells Fargo raises view of possible legal losses above reserves to $3.3B

Wells Fargo to close 450 branches. See Stockwinners.com Market Radar for the story.

In a regulatory filing, Wells Fargo (WFC) noted that the company establishes accruals for legal actions when potential losses associated with the actions become probable and the costs can be reasonably estimated.

The high end of the range of reasonably possible potential losses in excess of the company’s accrual for probable and estimable losses was approximately $3.3B as of June 30.

“The increase in the high end of the range from March 31, 2017 was due to a variety of matters, including the company’s existing mortgage related regulatory investigations…

We expanded the time periods of this review to cover the entire consent order period of January 2011 through September 2016, and to perform a voluntary review of accounts from 2009 to 2010. We expect to complete this expanded review process and commence remaining remediation for these additional periods by the end of third quarter 2017.

As part of this expanded review process, we also expect to complete the review and validation of the number of potentially unauthorized accounts previously identified by the third-party consulting firm, including refinements to the practices and methodologies previously used to determine such number and to remediate sales practices related matters.

We expect that our review of the expanded time periods, which adds over three years to the initial review period of approximately four years, May 2011 to mid-2015, and our review and validation efforts for the initial review period, may lead to a significant increase in the identified number of potentially unauthorized accounts.

However, we do not expect any incremental customer remediation costs as a result of these efforts to have a significant financial impact on the company,” the company stated in it filing.

WFC closed at $52.84. Stock has a 52-week trading range of $43.55 – $59.99.

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Barron’s is Bullish on Citi, Honeywell, Remains Bearish on Twitter

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue is bullish on several names. They include:

Stockwinners offers stocks to buy, stocks to watch, upgrades, downgrades, earnings, Stocks to Buy On Margin

 

Advance Auto Parts could rally 20%-30% in two years – Advance Auto Parts (AAP) stock’s valuation seems to discount a lot of bad news, while ignoring the potential for the company to boost profit margins and spur earnings growth in coming years, Vito Racanelli writes in this week’s edition of Barron’s. The shares could rally 20%-30% in the next two years, as earnings rise and the company demonstrates it can hold its own in the face of increasing online competition, he adds.

Citi could rise by 50% – At its first investor day since 2008, Citigroup (C) laid out some ambitious financial targets and Wall Street liked what it heard, Andrew Bary writes in this week’s edition of Barron’s. While the company’s shares finished the week up 2%, there could be more upside because Citi offers the combination of a low valuation and what could be the highest earnings growth rate among its peers in the years to come, Barron’s adds. The bank is targeting $9 a share in 2020 earnings, and suggested its stock could hit $100, 48% above the current level, Bary points out.

Honeywell (HON) shares could return 15% next year – If Darius Adamczyk, Honeywell’s new CEO, delivers as expected, the company’s revenue could rise 4% next year, and earnings, 10%, leading to a higher price/earnings ratio and a 15% total return for the shares, Lawrence Strauss writes in this week’s edition of Barron’s.

Blue Chips set to boost dividends – The third quarter is shaping up to be a ‘very strong one’ for dividend growth among blue-chip names, Lawrence Strauss writes in this week’s edition of Barron’s. IHS Markit expects Mondelez (MDLZ) to announce a 10.5% dividend increase and Intuit (INTU) to declare a hike of 15%, he says. Meanwhile, Microsoft (MSFT) is expected to raise its quarterly dividend by 10.3%, Royal Caribbean Cruises (RCL) to boost its quarterly payout by nearly 15%, Yum! Brands (YUM) to increase 13.3%, and Accenture (ACN) to boost payout by 10%, Barron’s points out.

BEARISH MENTION

Amazon.com, Alphabet to likely ‘cool off for a while,’ – Last week, Alphabet (GOOG; GOOGL) and Amazon (AMZN) beat quarterly sales expectations but showed underwhelming profit and it is not surprising investors would seize upon blemishes in the report as an excuse to take profits, Tiernan Ray writes in this week’s edition of Barron’s. While there is no fundamental weakness with either company, shares will probably show less upside in the rest of this year than in the first half, he notes.

Barron’s sees ‘no relief in sight’ for Twitter – Twitter (TWTR) is nearly as expensive as Facebook (FB), whose revenue and profit are galloping higher, based on next year’s projected earnings before interest, taxes, depreciation and amortization, Jack Hough writes in this week’s edition of Barron’s. That means Twitter must bounce back quickly, or get bought, or suffer a continuing stock-price decline, perhaps to single digits, Hough argues, adding that the first two outcomes are looking increasingly unlikely.

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Wells Fargo to Close 450 Branches

Wells Fargo targeting $2B expense reduction by year-end 2018

Wells Fargo to close 450 branches. See Stockwinners.com Market Radar for the story.

Sees FY17 effective tax rate about 29%. Expects efficiency initiatives will reduce expenses by $2B annually by year-end 2018 and that those savings will support investments in the business.

Plans to close ~450 branches in 2017-2018 to eliminate overlap and improve performance of the network; says 93 branches closed YTD 2017 through June.

Anticipates $130M in 2017 savings from gains on building dispositions and workforce optimization with an additional $20M in 2018.

Also reducing non-customer facing travel and expenses with focused efforts on virtual conferences and telepresence, as well as leveraging internal meeting spaces and services.

Wells Fargo sees auto portfolio stabilizing in 1H18 – Says seeing “slow but steady” improvement in retail business.

Expects an additional $2B in annual expense reductions by the end of 2019; these savings are projected to go to the “bottom line.”

Says had digital active customers of 27.9M, stable LQ and up 2% YoY; had 20.4M mobile active customers, up 1% LQ. Notes that mobile active customers surpassed our desktop active customers for the first time in May.

Expects to increase Q3 dividend to 39c per share from 38c per share, subject to board approval.

WFC last traded at $55.17.

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KS Bancorp Receives $35 a share Offer

First Citizens proposes to acquire KS Bancorp for $35 per share in cash

First Citizens BancShares (FCNCA) said it has made a proposal to acquire KS Bancorp (KSBI) for $35.00 per share in cash, in a transaction valued at approximately $45.8M, representing a 49.6% premium over KS Bancorp’s (KSBI) closing trading price on July 12, 2017, and a 84% premium over KS Bancorp’s book value per share as of March 31, 2017.

The proposal was conveyed today in a letter to KS Bancorp’s Board of Directors. First Citizens has decided to make its proposal public in order to inform KS Bancorp’s shareholders of the compelling proposal that would provide immediate liquidity to them at a substantial premium to book value and the market’s assessment of KS Bancorp’s value.

“Our objective is to engage in substantive discussions with KS Bancorp and conduct customary due diligence so that we and KS Bancorp can together quickly bring this compelling transaction to KS Bancorp’s shareholders,” said Frank B. Holding, Jr., chairman and CEO of First Citizens.

“We are disappointed by KS Bancorp’s rejection of our offer without any discussion, and were surprised that the reason given for this was a contemplated S corporation reorganization that we understand would involve a buyout of a significant number of KS Bancorp shareholders. We believe that KS Bancorp shareholders will favor the immediate liquidity at a substantial premium that our acquisition proposal would provide.”

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Avoid Bank Stocks, JP Morgan Chart Signals Sell

Bank stocks rose on prospects of tax-cuts but Trump’s problems have sidelined his agenda

Yield Curve is now Flattest since the Election rally began

 

jpm-20170531
Head and Shoulders pattern on JP Morgan (JPM)

JP Morgan (JPM), the DJIA component, shares rose along with the rest of the market  following last year’s election on expectation of tax cuts and other pro-growth measures. But Trump has been embroiled in troubles, distracting him from his legislative agenda. Republicans are divided on key issues, including how much to cut and how to offset the lost revenue, if at all. Easing of bank regulations and oversight imposed by the Frank-Dodd Law appear to have taken backseat to the Russian and Comey investigations.

On a 1-year daily chart of  JPM stock chart there is a clear active bearish head and shoulders pattern that became active when price broke below the neckline at the $82 area.

Rising Rates

Economic growth spurs demand for loans, but it also encourages higher interest rates and wider spreads between banks’ short-term funding costs and long-term lending rates. Yield spreads widened after the election. But with the Federal Reserve raising short-term interest rates and the 10-year Treasury yield sliding toward 2017 lows, the yield curve is the flattest since the 2016 election. That’s bad news for banks’ net margins and not a comforting sign for the economy as a whole. It is widely expected that the FOMC will raise its key lending rate by 25 bp on June 9th.

Sector Troubles

JP Morgan is considered as one of the best operated large banks. If you add impact of other not-so-well-managed banks to the sector, you will realize that the Financial Select Sector ETF ( $XLF ) is heading lower.

This morning New York City Mayor Bill de Blasio and Comptroller Scott M. Stringer jointly announced that they will vote to prohibit New York City from entering into new contracts for deposits with Wells Fargo ( $WFC ). The beleaguered bank has lost many executives and customer over its various marketing schemes.  Shares of WFC are now in a well defined bearish downward pattern. Shares are trading well below their 200-day moving average #MA .

Bank of America ( $BAC ) announced that it expects to complete the sale of its consumer credit card business in the United Kingdom, #MBNA Ltd., to #Lloyds Banking Group (LYG). The sale is expected to improve #Basel 3 risk-based capital ratios by approximately 11 basis points under the Advanced approaches and 15 basis points under the Standardized approach in the second quarter ending June 30, 2017. The U.K. consumer credit card portfolio had approximately $9.4B in credit card receivables and earned $211M in interest income in the first quarter of 2017. This type of news should send BAC shares higher but BAC is down 2.7% and has broken below its support level of $23.

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