Bank Stock Roundup: Expansion Continues Amid Tough Rules, Citigroup & JPMorgan in Focus
Amid the ongoing pressure on revenues, strategy to drive growth through expansion in profitable markets remained prominent in the last four trading days. JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and U.S. Bancorp (USB) led the field in restructuring activities in the industry.
Further, Federal Deposit Insurance Corporation (‘FDIC’) came up with third-quarter 2014 earnings of insured banks and savings institutions. The results reflect overall improvement. The number of troubled assets and institutions dropped significantly, which is encouraging. Also, organic growth aided by higher revenues, and improved loan and deposit balances were impressive. However, higher non-interest expenses and pressure on margins were on the downside.
Moreover, the Federal Reserve intends to issue tougher rules for governing the banks’ commodity businesses which should go a long way in improving their risk profile. This would also alleviate risks to the U.S. financial system to some extent.
(Read last to last week’s developments here: Bank Stock Roundup for Nov 21, 2014)
Recap of the Week’s Most Important Developments:
1. In an effort to expand in the African continent, JPMorgan is contemplating the establishment of an office in Kenya “in time,” per a release by Bloomberg. The company’s presence in Africa spans over 100 years.
In a recent interview with Marc Hussey, joint-senior country officer for sub-Saharan Africa, stated that JPMorgan envisions promising opportunities in Nigeria, Ghana and Kenya. He also mentioned that any expansion in East Africa would depend on the overall regulatory environment in the region. (Read More: JPMorgan Banking on Kenyan Growth for Africa Expansion)
2. Citigroup is now looking to earn revenues from bond sales management and share offerings in Spain, per a Bloomberg report. The bank expects 5–10% revenue growth in Spain in 2015.
Notably, following the financial crisis, lending decreased thus leading European companies to approach bond markets for funding. Therefore, bond issues at Spanish companies reflected 54% growth from 2010, while bank lending declined 24% in Sep 2014 compared with 2010.
Spain contributes a significant portion of Citigroup’s overseas revenue within Europe, the Middle East and Africa. According to Country Officer William Van Dyke, 2015 will be prosperous for equity markets experiencing capital increases and accelerated equity offers.
Now, Citigroup is strategizing to capitalize on Spain as the country is gradually recovering from the two-year recession and a sovereign debt crisis. Further, Spain’s economy has also reflected growth for five consecutive quarters, which benefited Citigroup’s investment and corporate-banking units in Spain.
3. Following the disclosure by the Senate Permanent Subcommittee on Investigations that banks are gradually becoming owners of physical commodities, Federal Reserve Governor,Daniel K. Tarullo testified before the Senate Committee. In his speech to the committee, Tarullo stated that the Fed intends to issue tougher rules for governing the banks’ commodity businesses.
Notably, bank officials, while testifying before the Senate Committee, had maintained that risks arising from their physical commodity businesses are effectively managed. Despite this, the Fed is planning to issue a formal notice of public rulemaking related to the matters concerning banks’ stakes in commodity market in the first quarter of 2015. (Read More: Banks' Commodity Business: Tougher Rules in the Cards?)
4. In a fall-out to foreign exchange rate-rigging fines, Citigroup has been removed by the European Central Bank ('ECB') from its foreign-exchange market panel. The company’s removal came on the heels of regulators slapping a fine of $1 billion on the bank for rigging currency benchmarks including the ECB’s fix. Among the six banks, Citigroup was the only member of the ECB Foreign Exchange Contact Group. (Read More: Citigroup to Be Removed from ECB Forex Contact Group)
5. The U.S. Securities and Exchange Commission (‘SEC’) has granted Bank of America Corp. (BAC) a 30-month waiver for selling shares in hedge funds, startups and other private offerings to wealthy and institutional investors. According to the SEC laws, any floundering financial firm is barred from selling a private offering for 60 months. Notably, the same restriction was supposed to be imposed on BofA this week after the bank settled its faulty mortgage-backed securities (‘MBS’) sale with the SEC for $136 million. (Read More: BofA Gets 30-Month SEC Waiver to Sell Hedge-Fund Shares)
Price Performance
Overall, the performance of banking stocks remained skewed toward the optimistic side as expansion plans are expected to boost top lines. Also, investors were upbeat about the FDIC-insured banks reporting improved results.
Though stringent regulations for physical commodity businesses of banks are in the cards, investors took the news in their stride, expecting banks to meet these in the same way they have fulfilled several other requirements.
Company | Last Week | Last 6 months |
JPM | -0.2% | 10.9% |
BAC | -0.1% | 12.9% |
WFC | 0.9% | 8.8% |
C | 0.9% | 13.8% |
COF | 1.9% | 7.2% |
USB | 0.9% | 7.6% |
PNC | 1.4% | 5.1% |
In the last four trading sessions, Capital One Financial Corp. (COF) and The PNC Financial Services Group, Inc. (PNC) were the major gainers, with their share prices increasing 1.9% and 1.4%, respectively. However, JPMorgan and BofA declined marginally.
Over the last 6 months, Citigroup and BofA were the top performers, with their shares advancing 13.8% and 12.9%, respectively. Also, JPMorgan witnessed a 10.9% price increase over the same time frame.
What Next in the Banking Universe?
Since no major development is expected next week, the performance of banking stocks should not change significantly.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Read the Full Research Report on JPM
Read the Full Research Report on PNC
Read the Full Research Report on COF
Read the Full Research Report on USB
Read the Full Research Report on C
Read the Full Research Report on BAC
Zacks Investment Research
