- 21 сентября, 17:21
- Zacks Investment Research
Over the last five trading days, major banks’ rally continued on expectation of interest rate hike this month. The rate hike will translate into top-line expansion for banks, leading to improved results in the quarters ahead.
Further, given the growth in economy, low unemployment rate and healthy consumer sentiment, the demand for loans and other related products of banks are expected to rise. However, imposition of tariffs on $200 billion worth of Chinese goods next week could escalate trade war tensions, impacting consumers and increasing inflation.
Nevertheless, mortgage rates rose, with 30-year mortgages averaging 4.65% (highest since May) on strong domestic economy, trade war tensions and sale of debt by the U.S. government. However, homeowners seeking lower rates for refinancing are definitely big-time losers. Rise in mortgage rates will limit refinancing activity as well.
Further, the benchmark 10-year Treasury yield climbed to more than 3%, reaching a 7-year high. Escalation in U.S. debt sales has lowered Treasury bond prices pushing the interest rates higher.
Talking about company-specific headlines, banks continued with restructuring and streamlining initiatives. These efforts are expected to attract more business and support revenue growth. Moreover, resolution of probes and lawsuits related to legacy matters continued along with strong capital deployment activities.
(Read: Bank Stock Roundup for the Week Ending Aug 24, 2018)
Important Developments of the Week
1. In an effort to further simplify operations, Bank of America BAC recently announced that it will divest its businesses that manage alternative investment feeder funds to a financial-technology firm, iCapital Network. The financial terms of the deal, expected to close in first half 2019, have not been disclosed. This business, which collects client money to invest in hedge funds and private equity, manages nearly $20 billion in client holdings. (Read more: BofA to Divest Alternative Investment Feeder Funds Business)
2. Banks continue to struggle with increasing legal hassles. Recently, Citigroup C was slapped with a fine of $13 million by federal regulators. The company has been accused of malpractices related to its dark pool — CitiMatch — amid ongoing scrutiny around the U.S. share trading industry. Per the U.S. Securities and Exchange Commission (SEC), Citigroup has been fined $6.5 million, and will pay $5.4 million as disgorgement and prejudgment interest. Further, the bank’s affiliate — Citi Order Routing and Execution (CORE) — has been fined $1 million. (Read more: Citi Agrees With $13M Settlement for Dark Pool Probe)
3. Wells Fargo’s WFC CEO Tim Sloan in a bi-monthly meeting held recently said that the company plans to reduce its workforce by 5-10% in the next three years in a bid to transform itself into a more efficient and customer oriented firm. Though the move is likely to impact about 13000-26000 positions per the headcount disclosed in the latest quarterly filing, it would lend support to the company’s financials. Costs at Wells Fargo continue to rise due to its involvement in several legal hassles.
4. After facing problems in its consumer lending operations, Wells Fargo’s commercial lending business is also expected to be plagued with challenges now. At the Barclays 2018 Global Financial Services Conference, the company’s chief financial officer, John Shrewsberry, revealed a dismal picture for the bank’s loan book with a expected fall in both consumer and commercial loans to continue in the third quarter of 2018. Specifically, commercial & industrial (C&I) and commercial real estate (CRE) loans are expected to be down from the prior quarter, reflecting continued “competitive lending environment”, disciplined pricing and strong capital markets. Further, Wells Fargo anticipated consumer loans to decrease “modestly” on a sequential basis. (Read more: Wells Fargo Faces New Challenge as Business Loans Decline)
5. Fifth Third Bancorp’s FITB plan to acquire Chicago-based MB Financial, Inc. (MBFI) gained steam after MB Financial’s common shareholders accorded their assent to the agreement. The deal is now subject to closing customary conditions, which includes certain regulatory approvals and is expected to complete by the first quarter of 2019.
6. Following the approval of the 2018 capital plan, major banks have been engaging in steady capital deployment activities. Recently, JPMorgan’s JPM board of directors announced a 42.9% hike in its quarterly dividend. The revised dividend of 80 cents per share will be paid on Oct 31 to shareholders of record as of Oct 5. (Read more: JPMorgan Cheers Shareholders With 43% Dividend Hike)
Another major bank — U.S. Bancorp’s USB board of directors also announced a 23% hike in the company’s quarterly common stock dividend. The revised quarterly dividend is 37 cents per share compared with the previous figure of 30 cents. This dividend will be paid on Oct 15 to shareholders of record as of Sep 28. (Read more: U.S. Bancorp Delights Shareholders With 23% Dividend Hike)
Here is how the seven major stocks performed:
Over the last five trading sessions, Citigroup and JPMorgan were the major gainers, with their shares increasing 6% and 4.5%, respectively. Moreover, shares of PNC Financial PNC rallied 2.9%.
In the past six months, shares of U.S. Bancorp and JPMorgan gained 6.5% and 4.6%, respectively. However, shares of PNC Financial have declined 8%.
Over the next five trading days, performance of bank stocks will depend on the outcome of the FOMC Meeting scheduled to be held on Sep 25-26.
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