The Federal Reserve’s chairman Jerome Powell announced the second rate cut of 2019, by 25 basis points (bps), at the end of the two-day Federal Open Market Committee (FOMC) meeting this Wednesday. Global economic growth and trade-war related uncertainties leading to slowdown in business investments were cited as key reasons for the latest cut. Hence, banking stocks are expected to record lower margins at the end of the current quarter
However, the central bank acknowledged U.S. household spending to be strong amid robust job market, rising income and solid consumer confidence. Therefore, investors’ confidence were upbeat on banking stocks as there were no indications of further rate cut.
Nevertheless, issues, including trade-war concerns and global turmoil, have continued to impact banking stocks.
Regarding company-specific news related to banks, restructuring and streamlining initiatives including digitalization continued. In addition, probes and lawsuits related to legacy matters persisted. Moreover, capital deployment was at its peak with dividend hikes as reward for shareholders.
(Read: Bank Stock Roundup for the Week Ending Sep 13, 2019)
Important Developments of the Week
1. Wells Fargo WFC is launching pilot digital cash transfer program that will use its distributed ledger technology (DLT) platform to settle cross-border money transfers internally across the bank’s global network using digitized cash. The pilot program is expected to be available in 2020. It will help complete dollar transfers initially and later expand to multi-currency transfers and gradually cover its entire global branch network. (Read more: Wells Fargo Unveils DLT-Based Cross-Border Transfer Program)
2. Continuing with capital-deployment activities, banks are on the path of rewarding shareholders with dividend hikes. Recently, JPMorgan JPM increased its regular quarterly dividend. The company announced a dividend of 90 cents per share, representing 12.5% hike from the prior payout. The dividend will be paid out on Oct 31 to shareholders on record as of Oct 4. (Read more: Is JPMorgan Stock Worth Holding on to Post Dividend Hike?)
U.S. Bancorp’s USB board of directors also announced a 13.5% hike in the company’s quarterly common stock dividend. The revised quarterly dividend comes at 42 cents per share compared with the previous figure of 37 cents. This dividend will be paid on Oct 15 to shareholders of record as of Sep 30, 2019. (Read more: U.S. Bancorp Announces 13.5% Dividend Hike: Worth a Look?)
3. Bank of America Corporation BAC is under the Consumer Financial Protection Bureau’s (“CFPB”) investigation which is trying to find out whether or not the bank opened unauthorized customer accounts to meet sales goals back in 2014. In March 2019, the CFPB demanded that BofA provide documents concerning “unlawful acts or practices in connection with unauthorized consumer bank, credit card, and other accounts.”
The CFPB’s probe came to light when the regulatory body posted these documents that it sought from the bank. The documents showed legal disputing between the CFPB and BofA over the past six months.
Notably, after Wells Fargo’s fake account scandal came to light, the Office of the Comptroller of the Currency (“OCC”) has already investigated more than 40 banks, including BofA, for similar wrongdoings. Hence, in a March petition, BofA requested that the CFPB dismisses its demand. This is because the bank felt that the OCC’s investigation was suitable, but now the probe being conducted by CFPB is “unnecessary, redundant and unduly burdensome.”
In fact, BofA noted that the evidences that it had provided earlier to the agency were proof that the bank did not have any systemic sales misconduct issues. It was established that there were certain instances of “potentially unauthorized credit card accounts”, but the number that was identified was “vanishingly small.”
Hence, in its petition to dismiss CFPB’s probe, BofA argued that the CFPB should modify its investigation and keep certain information confidential.
Here is how the seven major stocks performed:
Over the last five trading sessions, BofA and Citigroup C were the major losers, with their shares decreasing 1.2% and 0.9%, respectively. Moreover, shares of JPMorgan declined 0.7%. However, shares of PNC Financial PNC increased 1.2%.
In the past six months, shares of Wells Fargo have depreciated around 2.9%. However, shares of JPMorgan and Capital One Financial COF climbed 13.4% and 11.5%, respectively.
Over the next five trading days, performance of bank stocks will likely remain the same unless any unexpected event occurs.
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U.S. Bancorp (USB) : Free Stock Analysis Report
Wells Fargo & Company (WFC) : Free Stock Analysis Report
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