Bank Stock Roundup: Treasury Yields Decline, JPMorgan, Wells Fargo in Focus on Restructuring
Performances of major bank stocks over the last five trading days suggest a bleak picture. Huge equity sell-off amid the crippling COVID-19 impact pushed investors toward safe bonds, leading to a decline in the yield on benchmark 10-year Treasury note, in turn, pushing bond prices higher.
Specifically, the rate on the 10-year Treasury bond slid slightly to 0.62%. Further, the yield on the 30-year Treasury bond shrunk to a low of 1.35%. In addition, mortgage rates remain near record-lows. Therefore, the housing sector is expected to get a boost from an improvement in origination volumes as well as refinancing activities. Thus, banks with mortgage banking operations will likely record improvement in mortgage revenues.
Talking about company-specific headlines, banks continued with their restructuring and streamlining initiatives. The efforts are anticipated to attract more business and fuel revenue growth. Apart from these, global expansion to diversify sources of revenues remains high on the cards.
(Read: Bank Stock Roundup for the Week Ending Aug 28, 2020)
Important Developments of the Week
1. With China liberalizing its mutual funds sector wider for global firms, Citigroup C received a domestic fund custody licence by China regulators. The New York bank is the first U.S. bank to get such a permit. Notably, the license granted will aid the banking giant in serving people domiciled in China with its custody-related services to both mutual funds and private funds. However, the bank awaits the clearance of an on-site inspection to be concluded later this year.
2. JPMorgan JPM is set to increase stake in the China securities joint venture (JV). The U.S. banking giant has the first right to buy a 20% stake in the JV from one of the local partners — Shanghai Waigaoqiao FTZ — for 177.7 million yuan ($26 million). Other existing shareholders gave up their rights to add to their holdings. Also, they agreed to not transfer and/or divest their holdings without any consent from JPMorgan.
The potential stake purchase will take JPMorgan’s ownership in the JV to 71%. Thus, it will bring the company a step closer to gain full ownership of a securities firm in China. The JV comprises investment banking, research, equities and fixed-income operations.
3. In an effort to exit the Brazil private banking business, JPMorgan entered an agreement with BancoBradesco S.A., wherein the former will possibly transfer its private banking clients to the latter. JPMorgan is expected to continue to serve its clients in Brazil as a global bank with the same quality as ever. It will continue to provide a platform for products and services abroad. Moreover, the transfer agreement is in line with JPMorgan’s objective of ensuring its customers’ continuity and excellence of the services currently provided.
4. Wells Fargo WFC introduced a low-cost and convenient bank account, Clear Access Banking, which will not charge overdraft fees. The checkless account will be available for a monthly fee of $5. The company is targeting younger adults with this account as they are new to banking ways. The account will help them better manage their spending, without incurring overdraft or non-sufficient fund fees. In fact, the monthly fee has been waived for primary account owners aged between 13 and 24 years. The account has been made available on online platforms and at branches. Notably, it forms part of the Wells Fargo’s efforts to “simplify products and services”.
5. Moody's Investors Service, a rating arm of Moody's Corporation MCO, affirmed all the ratings of Wells Fargo and its subsidiaries. The Wall Street biggie’s senior unsecured debt rating is affirmed at A2.Wells Fargo Bank, N.A., the main bank operating entity’s long-term deposit rating has been affirmed at Aa2 andlong-term senior unsecured debt rating at Aa2. The bank’s counterparty risk assessment is Aa1(cr)/Prime-1(cr). Further, the deposit rating of Aa1/Prime-1 and a stand-alone baseline credit assessment (BCA) of a2 were affirmed.
However, the rating firm’s outlook for the bank has been downgraded to “negative” from “stable”. "The outlook change reflects Wells Fargo's slower than anticipated pace in resolving its legacy governance, oversight, compliance and operational risk management deficiencies", said Allen Tischler, senior vice president.
Price Performance
Here is how the seven major stocks performed:
Company | Last Week | 6 months |
JPM | -1.4% | -11.6% |
BAC | -1.8% | -5.6% |
WFC | -0.7% | -38.0% |
C | -1.5% | -19.2% |
COF | -1.7% | -18.4% |
USB | 0.7% | -16.8% |
PNC | -0.6% | -9.0% |
Over the past five trading days, Bank of America BAC and Capital One Financial COF have recorded the maximum losses, with their shares depreciating1.8% and 1.7%, respectively. Also, shares of Citigrouphave declined1.5% in the same period.
In the past six months, shares of Wells Fargo, Citigroup and Capital One have depreciated38%, 19.2% and 18.4%, respectively.
What’s Next?
Over the next five trading days, unless there is any significant change in the economic situation related to the coronavirus pandemic, the major bank stocks are likely to perform in a similar fashion.
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