While increased capital regulations are being planned for banks, restructuring and inorganic growth activities ruled the headlines for the last five trading days. Citigroup Inc. (C) was in focus with its outlook for the current quarter and plans to clear the next round of stress test. BB&T Corporation (BBT) announced yet another acquisition deal.
Nonetheless, the Federal Reserve plans to impose new capital regulations on big U.S. banks owing to apprehensions related to the ‘too-big-to-fail’ risk. Though such regulations may adversely impact the lending ability of banks, we believe that this would also enable them to withstand any future financial crisis.
(Read last week’s developments: Bank Stock Round Up for Sep 8, 2014.)
Recap of the Week’s Most Important Developments:
1. At the Barclays Global Financial Services Conference in New York, Citigroup came up with its latest outlook for the third quarter and listed its priorities to be worked upon. The bank’s CFO John Gerspach specified that the bank’s foremost aim is to work on its plans in order to pass the latest stress tests. (Read more: Citi Focus on 2015 Capital Plan; Trading Revenues to Improve.)
2. Aiming to improve the operations of its Mexico-based subsidiary Banamex, Citigroup CEO Michael Corbat announced an investment of 20 billion pesos ($1.5 billion) in the unit’s technology, data centers and physical infrastructure over the next four years. Further, company targets to increase loans extended to small and medium-size businesses by $4 billion, and the financing provided to Mexico's growing energy sector by $10 billion over the same period. (Read More: Citi to Invest $1.5B in Mexico, Enhances Growth Potential.)
3. Adding to the already intense capital regulations in the banking sector, the Fed intends to impose new, stricter norms on the U.S. banking giants. The Fed Governor Daniel K. Tarullo released a statement giving an update on the Fed’s advancement towards the Dodd-Frank Act. He also outlined some important forthcoming “regulatory and supervisory priorities” to act upon the concerns arising from the “too-big-to-fail” banks and systemic risk.
Among the imminent rules, Tarullo outlined the imposition of common equity risk-based capital surcharges on the U.S.-based global systemically important banks (‘GSIBs’) that include The Goldman Sachs Group, Inc. (GS), Citigroup, Bank of America Corp. (BAC), Wells Fargo & Company (WFC) and JPMorgan Chase & Co. (JPM). (Read More: No Escape for U.S. Banks: New Regulations in the Cards.)
4. Within a week of inking a deal to acquire 41 banking branches in Texas, BB&T announced another transaction to buy the Crestview Hills-based Bank of Kentucky Financial Corporation. The cash/stock deal is valued at around $363 million. The acquisition will enable BB&T to foray into the Northern Kentucky/Cincinnati market, making it the second largest bank in Kentucky. (Read More: BB&T Inks Another Deal, Buying Bank of Kentucky for $363M.)
Price Performance
Though steps taken by the banks to improve financials cheered investors, the optimism was somewhat dampened by the Fed’s intention to impose additional capital surcharge on big banks. Hence, most of the banking stocks showed a subdued price movement.
|
Company |
Last Week |
6 months |
|
JPM |
-0.3% |
4.5% |
|
BAC |
3.4% |
-3.8% |
|
WFC |
-0.1% |
8.7% |
|
C |
-0.1% |
8.9% |
|
COF |
-1.8% |
10.3% |
|
USB |
-0.1% |
1.1% |
|
PNC |
0.5% |
3.9% |
In the last five trading sessions, BofA emerged as the major gainer with its share price increasing 3.4%, while Capital One Financial Corp. (COF) was the top loser with 1.8% decline in price.
Over the last six months, Capital One and Citigroup were the top performers, with their shares gaining 10.3% and 8.9%, respectively. However, BofA witnessed a 3.8% price decline over the same time frame.
What Next in the Banking Universe?
As nothing major is expected over the next week, the performance of banking stocks should not change significantly.
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