Over the last five trading days, performance of bank stocks was unimpressive as a number of issues including decline in Treasury yields on increasing fears of economic slowdown and the Federal Reserve's dovish monetary policy stance shook the markets. The issues resulted in negative investor sentiments, leading to a slide in banking stocks.
Major banks’ performance was dismal on the Federal Reserve’s decision of no more hikes in 2019 along with lower expectations for GDP growth and inflation despite strong labor market. Moreover, the Fed unveiled its plan of ending the monthly reduction of its balance sheet.
Notably, the Fed’s decision resulted in the benchmark 10-year Treasury yield hitting its 14-month low of 2.451%. Decline in treasury yields hurt banks’ profitability as a narrower spread between long-term and short term rates hampers net interest margin growth. Further, mortgage rates fell sharply to a one-year low of 4.34% after the Fed’s announcement of resuming the bond-buying business, which could even lower the rates going forward.
Regarding company-specific news related to banks, restructuring and streamlining initiatives continued. In addition, resolution of probes and lawsuits related to legacy matters persisted.
(Read: Bank Stock Roundup for the Week Ending Mar 15, 2019)
Important Developments of the Week
1. As part of the efforts made by banks to attract low-income customers, JPMorgan Chase JPM started offering low-fee checkless accounts. The new account, called Secure, does not require any minimum balance and can be accessed through the company’s mobile app, branches and ATMs for $4.95 a month. Although these accounts are no-overdraft accounts, these come with debit cards, digital payments and free check cashing. Moreover, these accounts charge $60 annually, which is significantly below $200-$500 per annum for check cashing and money order services. (Read more: JPMorgan Offers Checkless Accounts for Low-Income Customers)
2. Wells Fargo & Company WFC is in talks to divest the retirement plan services business to Principal Financial Group, Inc. PFG. Per people familiar with the matter, if all negotiations are successful, a deal of more than $1 billion could be announced later this month. This move by the bank is intended to streamline its business in order to deal with consequences of the unauthorized-account scandal, which led the Federal Reserve to impose a cap on the company’s asset growth in February 2018. (Read more: Wells Fargo in Talks to Divest Its Retirement Business)
In a separate development, Wells Fargo is mulling to replace its current CEO Timothy Sloan with Harvey Schwartz, former president and co-chief operating officer of Goldman Sachs GS. Sloan took over in October 2016 when Wells Fargo was facing public and political outrage after the fake accounts scandal. Though the bank has made some progress under his leadership, it still lacks regulators’ confidence and is yet to see the restriction on asset growth lifted.
Sloan was questioned by the Office of the Comptroller of the Currency, post which the regulator commented that it was disappointed with the bank. The regulator mentioned the bank’s “inability to execute effective corporate governance and a successful risk management program.”
3. Citigroup’s C banking subsidiary, Citibank, has been slapped a $25-million penalty by The Office of the Comptroller of the Currency (“OCC”) for violating the Fair Housing Act, while providing mortgage loans under its Relationship Loan Pricing (“RLP”) program. Under the program, Citi offered reduced pricing for mortgage borrowers that kept assets up to a certain level with the bank, referring it to as relationship pricing. The Wall Street biggie has been accused by the OCC of lacking proper control measures due to which some eligible borrowers were denied benefits they otherwise deserved. Per the regulator, borrowers have been affected on the basis of their race, color, national origin, or sex. (Read more: Citigroup Faces $25M Penalty by OCC for Fair Lending Breach)
4. Recently, Wells Fargo Securities, a subsidiary of Wells Fargo settled the U.S. regulator — Securities and Exchange Commission (SEC) — lawsuit by agreeing for more than $800,000 civil penalty. The regulatory body had sued the bank, along with the Rhode Island government agency, of misleading investors in a municipal bond offering, which was issued for financing a start-up video-game company in 2016. The proposed settlement announced in the U.S. District Court in Providence by Wells Fargo and the SEC still awaits a federal judge’s approval. (Read more: Wells Fargo Settles Schilling Fraud Case, To Pay $800K)
5. Fifth Third Bancorp FITB announced the layoff of 30 employees at MB Financial in Wilmington (Clinton County). Per Worker Adjustment and Retraining Notification, the move followed Fifth Third's recent acquisition of MB Financial. Notably, Fifth Third has received the Federal Reserve’s approval to complete the acquisition of MB Financial. The deal was entered into in May 2018, per which Fifth Third had agreed to be merged with MB Financial for a total value of $4.7 billion. The merged entity will stand second in terms of estimated retail deposits and account for 20% share of middle-market relationships in Chicago. (Read more: Fifth Third Undertakes Job Cut in Cincinnati Region)
Here is how the seven major stocks performed:
Over the last five trading sessions, PNC Financial PNC and U.S. Bancorp USB were the major losers, with their shares decreasing 5.4% and 4.6%, respectively. Moreover, shares of BofA declined 3.8%.
In the past six months, shares of Capital One Financial COF and PNC Financial have depreciated around 15.5% and 13.3%, respectively. Further, shares of Citigroup have lost 12.6%.
Over the next five trading days, performance of bank stocks will likely remain the same unless any unexpected event occurs.
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Wells Fargo & Company (WFC) : Free Stock Analysis Report
Citigroup Inc. (C) : Free Stock Analysis Report
U.S. Bancorp (USB) : Free Stock Analysis Report
The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
Fifth Third Bancorp (FITB) : Free Stock Analysis Report
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
Capital One Financial Corporation (COF) : Free Stock Analysis Report
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
Principal Financial Group, Inc. (PFG) : Free Stock Analysis Report
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