Bank Roundup: UBS to Quit Some U.S. Services; Cap One and JPMorgan Beat Expectations

The quickly changing landscape and outlook for U.S. banks is continuing to evolve, with one major foreign bank, UBS, eliminating some services to U.S. clients and other major financial institutions reporting better than expected financial results less than a week after insolvency was feared for some financial institutions as well as for government sponsored entities Fannie Mae and Freddie Mac.

Swiss bank UBS said Thursday that it would stop offering offshore private banking services to clients in the U.S. The announcement came after intense pressure from U.S. lawmakers investigating tax havens the bank helped clients set up.

Senator Carl Levin (D-Mich.) had been rhetorically tough on UBS early Thursday, going so far as to float the idea of stripping the bank of its U.S. license.

“This not a new story,” Alois Pirker, senior analyst for Aite Group, told insideARM. “UBS has been cutting back its business since 2000. In theory, there were already forced to sign [tax] forms. They were already reporting this to the IRS. But they may have made exceptions there, and now they are regretting it.

“It’s yet another blow to offshore private banking. A lot of the offshore players have to be careful where they offer offshore private banking and how they do that. It’s yet another step making it harder to do offshore private banking.

“I think small Swiss [domiciled] banks will be the ones to benefit,” Pirker added.

Capital One and JPMorgan also reported earnings Thursday. While both reported earnings drops, they were less than estimates of Wall Street analysts.

Capital One Financial Corp. (NYSE: COF) said Thursday its second-quarter earnings fell 40 percent due to a sharp increase in its loan-loss provision amid further deterioration in the credit markets. The financial services firm’s net income fell to $452.9 million, or $1.21 per share, from $750.4 million, or $1.89 per share, a year earlier.

JPMorgan Chase (NYSE: JPM) earned $2 billion, or 54 cents per share, in the April to June period, down from $4.23 billion, or $1.20 per share, in the same time frame last year. Revenue slipped 3 percent to $18.4 billion.

“I think [the banking outlook] is getting better,” Pirker said. “But it’s still bad. You can only afford to lose money quarterly at that level for so long.”

Pirker expects financial services firms like Citi and Merrill Lynch to continue to look to sell businesses to focus on those businesses that are the most profitable.

He added that despite better results than expected from Capital One and JP Morgan, as well as Wells Fargo earlier in the week, there could still be much more ahead in credit losses for financial services firms.