Over the last five trading days, the performance of major banking stocks depicted pessimism. This perhaps reflects a shift of investors’ focus from better-than-expected Q2 earnings performance to the underlying fundamental weakness of banks.
The better-than expected Q2 results were largely supported by cost control initiatives. Macroeconomic headwinds, low rate environment and stressed energy sector (though improving now) kept top line under pressure. These factors are expected to continue hampering revenue growth in the quarters ahead.
Additionally, legal matters continued to crop up over the last five trading days. Though banks are meeting such issues upfront, these add to the concerns.
(Read: Bank Stock Roundup for the week ending Aug 5, 2016)
Major Developments of the Week
1. In what seems to be a setback for Bank of America Corporation BAC, the Department of Justice (DOJ) is seeking to reverse the ruling that dismissed the $1.27 billion penalty on the bank in May 2016. The fine is related to the sale of risky residential mortgage-backed securities (RMBS) by Countrywide Financial Corp. (acquired in 2008) (read more: Will BofA Face 'Hustle' Penalty as DoJ Seeks Reversal?)
2. A federal judge rescinded the bid filed by San Francisco-based Wells Fargo & Company WFC to dismiss the U.S. regulator Securities and Exchange Commission's (SEC) lawsuit. The regulating body had sued the bank along with Rhode Island government agency for misleading investors in a municipal bond offering, which was issued for financing a startup video game company in March. Notably, the former Phillies ace pitcher – Curt Schilling — was the founder of the game company (read more: Wells Fargo's Bid Dismissed in the SEC Lawsuit)
3. Wells Fargo Asset Management (WFAM), the global asset management division of Wells Fargo with $481 billion in assets under management (AUM) is set to acquire Analytic Investors, LLC, an investment firm with $15 billion in AUM. The deal is anticipated to close by Oct 1, 2016. Financial terms of the transaction were not disclosed (read more: Wells Fargo to Acquire Analytic Investors, Boosts AUM)
4. As expected by the markets, SunTrust Banks, Inc. STI announced an 8.3% hike in its common stock dividend. This followed the approval of its 2016 capital plan by the Federal Reserve in June (read more: SunTrust Raises Dividend: Right Time to Own the Stock?)
Price Performance
Overall, the performance of banking stocks indicated bearish stance. Here is how the seven major stocks performed:
|
Company |
Last Week |
6 months |
|
JPM |
-1.3% |
23.3% |
|
BAC |
-1.1% |
33.3% |
|
WFC |
-0.9% |
6.8% |
|
C |
0.0% |
30.7% |
|
COF |
-0.2% |
13.0% |
|
USB |
-0.3% |
14.3% |
|
PNC |
-1.1% |
9.4% |
In the last five trading sessions, JPMorgan Chase & Co. JPM was the worst performer, with its shares falling 1.3%. Further, both The PNC Financial Services Group, Inc. PNC and BofA declined 1.1%.
Over the last six months, BofA and Citigroup Inc. C were the best performers, with their shares surging 33.3% and 30.7%, respectively. Also, JPMorgan’s shares increased 23.3%.
What's Next in the Banking Space?
Banking stocks are expected to continue performing in a similar way unless any unforeseen incident occurs.
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