Bank Stock Roundup: Upbeat Trading Outlook, Treasury Yields Decline, Citi in Focus
Performances of major bank stocks over the last five trading days paint a mixed picture. Positive trading revenue outlook provided by some of the major banks indicates that the earnings picture will be impressive in the fourth quarter. This is because market activity remained steady in the first two months of the ongoing quarter on higher client activity. Additionally, rise in loan demand in 2021 over normalization of business activities is anticipated.
Nevertheless, the rate on the 10-year Treasury bond slid to 0.89% as the uncertainty looms over the trade deal this month, pushing investors toward safe havens. Further, the yield on the 30-year Treasury bond shrunk to a 2.71% low. In addition, mortgage rates remain near record lows.
Banks’ strategies to enhance profitability through streamlining operations and acquisitions sustained over the last five trading days. These 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 Dec 4, 2020)
Important Developments of the Week
1. Wells Fargo WFC expects to bear the brunt of asset growth restrictions, placed by the Federal Reserve in early 2018, for a little longer as it feels that the company still has work to do for improving its control systems. CEO Charlie Scharf, in a conference recently said “We have to do the work”. “I can’t speak for the regulators. They’ll be the ones to determine when the work is done to their satisfaction, but again I can say it’s our priority.” Further, he believes that though the pandemic made work on this aspect more challenging, lifting of consent order remains the company’s priority.
2. At a conference held on Wednesday, Citigroup’s C CFO Mark Mason mentioned that the company is planning the strategy for 2021 and he already expects costs tied to the transformation investments to be “up a couple percent” next year. He separately mentioned that the lending scenario is expected to pick pace in the second half of 2021. On the revenue front, Mason sees a flat trend for 2020, with consumer unit and institutional side of the business being affected by low rates and reduced levels of activity. Also, owing to strong markets performance, revenues from trading businesses, fixed income and equities are likely to be up in the mid-teens. On the investment banking side, revenues might decline in low double-digits year over year, due to an exceptionally strong fourth quarter last year.
3. JPMorgan’s JPM CEO Jamie Dimon stated at an investor conference that as the company is looking to make acquisitions to boost growth, its expenses in 2021 might top $67 billion. While nothing particular has been mentioned yet, Dimon signaled that the bank is considering buying asset management businesses or financial technology companies. While there are expectations that under the administration of president-elect Joe Biden, the regulatory environment for banks will become stricter, Dimon is of the opinion that they would be “very open” to JPMorgan doing a deal in a variety of industries or regions.
4. Truist Financial Corporation’s TFC indirect subsidiary, Truist Insurance Holdings, acquired Wellington Risk Holdings, Inc. Being an industry-leading Insurtech, Wellington operates as a managing general agent (“MGA”) in the admitted residential property markets. It has developed a virtual marketplace offering, which includes an easy-to-use agent portal and unique pricing flexibility, resulting in competitive products and superior underwriting performance.
Price Performance
Here is how the seven major stocks performed:
Company | Last Week | 6 months |
JPM | -1.7% | 15.6% |
BAC | -0.6% | 10.9% |
WFC | -0.2% | 0.1% |
C | 3.2% | 10.8% |
COF | 2.6% | 32.2% |
USB | 1.7% | 20.1% |
PNC | 1.0% | 23.7% |
Over the past five trading days, Citigroup and Capital One Financial COF have recorded the maximum gains, with their shares appreciating 3.2% and 2.6%, respectively. However, shares of JPMorgan declined 1.7% during the same period.
In the past six months, shares of Capital One, PNC Financial PNC and U.S. Bancorp USB have rallied 32.2%, 23.7% and 20.1%, 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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