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Bank Stock Roundup: Growing Optimism for March Rate Hike; BofA, Citi in Focus

Zacks Equity Research

Over the last four trading days, performance of the banking stocks reflected optimism. The growing positive stance in the market for the rate hike in March seems to be the primary reason for upbeat stock performance. Apart from this, Trump administration’s efforts to enact pro-business tax reform measures are working in the favor of banking stock’s price performance.

Given the positive operating backdrop, banks’ financials should strengthen further. Also, banks are expanding their operation by growing inorganically.

Moreover, banks are taking steps to lessen the impact of Brexit on their operations with potential plans to shift certain operations outside the U.K.



(Read: Bank Stock Roundup for the week ending Jan 30, 2017)

Important Developments of the Week

1. Beginning with the 2016 compensation details for Chief Executive Officers (CEOs) of two major banks – Bank of America Corp. BAC and Citigroup Inc. C – reveal contrasting details. BofA’s CEO, Brian T. Moynihan has been awarded with an annual salary of $20 million for his performance in 2016, representing a raise of 25% from his pay package in 2015 (read more: What Led to a 25% Pay Rise for Bank of America CEO?).

On the other hand, Citigroup’s CEO, Michael Corbat received about 6.1% pay cut in his total compensation package. His annual salary has been cut to $15.5 million in 2016 (read more: Is Citigroup CEO's Pay Cut a Result of Tepid Earnings?).

2. The PNC Financial Services Group, Inc. PNC announced a deal to acquire the U.S.-based commercial and vendor finance (U.S. C&V) business of ECN Capital Corp in an all cash transaction. The deal, which will likely close in the second quarter of 2017, is valued at $1.1 billion and includes a portfolio of construction, transportation, industrial, franchise and technology loans and leases (read more: PNC Financial to Buy ECN Capital's US C&V to Boost Portfolio).

3. Amid troubled times for Wells Fargo & Co. WFC, following the bank’s $185-million settlement in Sep 2016 to resolve regulators’ claims of illegally opening millions of unauthorized accounts, the U.S. lender reports retail banking customer activity for Jan 2017. The bank experienced a year-over-year plunge of 31% in new account openings, however, recorded a sequential rise of 18% (read more: Wells Fargo January Account Opening Plunges 31% Y/Y).

4.  Citigroup said that it may move to Frankfurt for its sales and trading in the European Union (EU) as a result of Brexit, ending ongoing rumors. The company is expected to finalize its choice by the first half of 2017. The main reason for the restructuring is the U.K.’s exit from the EU -- which led to the cancellation of “Passporting Rights.” The rights allowed banks to provide services to other member countries of the EU from London.

Currently, the company has its operations in most of the member countries of the EU, which will serve as an advantage. However, it might have to move some jobs from London. The company said that the availability of highly qualified staff and professionalism of regulator Bafin are the main reasons for considering Frankfurt as a plausible option.

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

1.0%

38.6%

BAC

0.2%

60.1%

WFC

0.7%

20.8%

C

0.7%

30.4%

COF

1.7%

35.8%

USB

0.9%

27.5%

PNC

1.0%

49.5%


In the last four trading sessions, Capital One Financial Corp. COF, PNC Financial and JPMorgan Chase & Co. JPM were the major gainers. While Capital One gained 1.7%, both PNC Financial and JPMorgan increased 1%.

BofA and PNC Financial were the best performers in the last six months, with their shares surging 60.1% and 49.5%, respectively. Moreover, JPMorgan’s shares jumped 38.6%.

What’s Next?

In the coming five days, nothing major is likely to occur in the banking space. Unless there is a substantial upheaval in the global markets, the bank stocks will continue to perform in a similar fashion.

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