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Bank Stock Roundup: Powell's Congressional Testimony, Citi, Wells Fargo in Focus

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Bank Stock Roundup: Powell's Congressional Testimony, Citi, Wells Fargo in Focus

Aggressive rate hikes and improving economy will be beneficial for the banks' financial performance.

Over the last five trading days, volatility in the stock market affected the banking stocks as well. The Fed Chair Jerome Powell’s congressional testimony dominated, wherein he presented an optimistic picture of the U.S. economy. This view hints at a rise in inflation, which will give the Fed all the more reason to take a hawkish stance in raising interest rates.

Additionally, growth in economy, low unemployment rate and strong consumer sentiment will drive the demand for loans and other related products of banks. These will support banks’ financials though the markets seem to be wary of such a scenario. Hence, this led to significant volatility and bank stocks’ performance turned bearish over the last five trading sessions.

Driven by the Fed’s upbeat view on the economy, mortgage rates were also on an upswing with 30-year mortgages averaging 4.43% (highest in more than four years). However, homeowners seeking lower rates for refinancing are definitely big-time losers. Rise in mortgage rates will limit refinancing activity.

Coming to company-specific news related to banks, business misconducts continued to dominate headlines. On the other hand, banks seem to be optimistic about gains from improving economy.

Further, Federal Deposit Insurance Corp. (FDIC)-insured commercial banks and savings institutions reported fourth-quarter 2017 earnings of $42.2 billion, down 2.3% year over year. Results were adversely impacted by elevated income taxes, higher non-interest expenses and loan loss provisions.



(Read: Bank Stock Roundup for the week ending Feb 23, 2018)

Important Developments of the Week

1. Citigroup C plans to refund about $330 million to its credit card customers by the latter half of this year, after having confessed to charging higher interest rates to some of the defaulters, since 2011. The bank discovered to have kept overcharging about 1.75 million accounts. (Read more: Citi to Make Refunds for Overcharging Credit Card Customers)

2. Already burdened by mounting legal woes, Wells Fargo WFC, one of the biggest players in the U.S. mortgage business, faces yet another suit over its discriminatory lending practices. This time, the company has been sued by the city of Sacramento. The suit accuses the bank of targeting African-American and Latino communities in Sacramento for issuing loans with more expensive and higher risk compared to loans made to white borrowers. (Read more: Wells Fargo Sued Over Unfair Discrimination Practices)

3. In yet other setback for Wells Fargo, it disclosed to have overcharged customers in investment and fiduciary services business. In the annual filing, the bank said the review process of its Wealth and Investment Management segment is in “preliminary stages.”

After facing inquiries from the financial regulators in late 2017 for forcing customers to buy products and services they did not require, Wells Fargo agreed to do a detailed investigation of the segment.

In its latest 10-K filing, the bank revealed that it is currently assessing whether there has been unjustified referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments and referrals of brokerage customers to the bank’s investment and fiduciary services business.

So far in the review process, the bank has found that in some cases customers have been overcharged fees in connection with certain assets and accounts. There have been issues of incorrect set-up and maintenance in the system of record of the values associated with certain assets.

Wells Fargo is yet to determine the number of accounts that were affected along with the reason that led to the wrongdoing.

4. At annual Investors’ Day conference, JPMorgan’s JPM management discussed the current macroeconomic backdrop and the path the company is taking to enhance profitability over the medium term. Also, it provided first quarter and full-year 2018 guidance. Along with this, the company provided details about how the newly implemented Tax Cuts and Jobs Act will affect its financials going forward. (Read more: The Road Ahead for JPMorgan Amid Improving Economy)

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

-3.3%

25.1%

BAC

-1.3%

31.7%

WFC

-3.1%

13.9%

C

-4.4%

8.3%

COF

-2.3%

21.6%

USB

-4.2%

4.0%

PNC

-2.6%

24.5%


In the last five trading sessions, Citigroup and U.S. Bancorp USB were the major losers, with their shares declining 4.4% and 4.2%, respectively. Further, JPMorgan fell 3.3%.

Bank of America BAC and JPMorgan were the best performers over the last six months, with their stock prices appreciating 31.7% and 25.1%, respectively. Also, shares of PNC Financial PNC rallied 24.5%.

What’s Next?

Over the next five trading days, banking stocks are expected to continue performing in a similar manner. Also, release of ADP National Employment Report on Mar 7 will likely set the direction of banks’ price performance.

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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
 
U.S. Bancorp (USB) : Free Stock Analysis Report
 
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Bank of America Corporation (BAC) : Free Stock Analysis Report
 
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