Bank Stock Roundup: Regions, SunTrust, BB&T in Focus Following Q2 Earnings

Zacks

Second-quarter results took the spotlight for banking stocks last week. Though the banks were able to counter the tough industry backdrop to some extent, overall muted growth forecasts for the forthcoming quarters was reflected in the modest share price movement.

Further, efforts to remove litigation overhang as well as restructuring initiatives undertaken by the banks remained in focus as well. These developments will support the bank financials in the long run.

(Read developments in the week prior to the last one: Big Banks Impress in Q2 Earnings despite Legal Costs)

Recap of the Week’s Major Happenings:

1. SunTrust Banks, Inc.’s (STI) second-quarter 2014 earnings of 81 cents per share surpassed the Zacks Consensus Estimate by 11.0%, backed by revenue growth. Better-than-expected results were driven by growth in top line and fall in provision for credit losses, partially offset by higher operating expenses. (Read More: SunTrust (STI) Beat Q2 Earnings on Healthy Revenue Growth).  

2. Regions Financial Corporation’s (RF) second-quarter 2014 earnings from continuing operations of 21 cents per share came in line with the Zacks Consensus Estimate. A strong capital position, reduced non-interest expenses and increase in loans and deposits were the positives for the quarter. However, lower top-line growth due to lack of credible improvement in the mortgage market as well as higher provision for loan losses remained the major concerns. (Read More: Regions Q2 Earnings in Line with Estimates, Rises Y/Y)

3. BB&T Corp.’s (BBT) second-quarter 2014 adjusted earnings per share of 71 cents lagged the Zacks Consensus Estimate of 75 cents. Notably, earnings for the reported quarter excluded mortgage and tax-related reserve adjustments of 12 cents per share, and merger-related and restructuring charges of 1 cent per share.

Lower-than-expected results were mainly due to a decline in revenues as well as a rise in non-interest expenses. Nevertheless, improvement in credit quality and capital ratios acted as the tailwinds while profitability ratios deteriorated. (Read More: BB&T Misses Q2 Earnings on Lower Revs and Higher Expenses).

4. Endless legal issues and penalties associated with improper business conducts continued to haunt Bank of America Corporation (BAC). BofA, in order to resolve the allegations of violating U.S. sanctions against drug-trafficking, will be paying $16.6 million as fine. (Read More: BofA Fined $16.6M for Violating Drug-Trafficking Sanctions).

5. In a drive to further prune its non-core businesses, JPMorgan Chase & Co. (JPM) has decided to vend nearly $1.3 billion loans and securities portfolio to Sankaty Advisors, the credit affiliate of Boston-based Bain Capital LLC, per a Financial Times report. The portfolio comprises of mezzanine loans in North America and Europe, and securities in Australia and Asia. The divestiture is in line with the bank’s strategy to focus on primary operations as well as meet other regulatory requirements.

Price Performance

Despite reporting decent second-quarter results, banking stocks depicted a downward trend. Moreover, with the bank earnings almost over, investors were again facing the realism of sluggish operating environment as the outlook for the upcoming quarters remain subdued. Hence, the stocks ended the last week on a pessimistic note.
 

Company

Last Week

6 months

JPM

-1.3%

8.6%

BAC

-0.4%

-4.3%

WFC

-1.1%

14.9%

C

-1.4%

2.5%

COF

0.3%

17.7%

USB

-1.5%

8.0%

PNC

-1.1%

6.2%


Last week, Capital One Financial Corporation (COF) witnessed a marginal rise. On the other hand, U.S. Bancorp and Citigroup Inc. (C) declined 1.5% and 1.4%, respectively.

Over the last six months, Capital One and Wells Fargo & Company were the top performers, with their shares advancing 17.7% and 14.9%, respectively. However, BofA witnessed a 4.3% price decline over the same time frame.

What Next in the Banking Universe?

In the absence of any significant catalyst, the banking sector is expected to perform in a similar manner this week. Further, no major development is predicted on the economic front presently.

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