Over the last five trading days, global economic concerns and continuous fall in oil prices have dampened the performance of banking stocks, which had been encouraging post the positive comments from the Fed Chairwoman Janet Yellen about rate hike. Dismal fourth-quarter 2015 outlook for trading revenues added to the woes.
Lawsuits and settlements pertaining to business malpractices continued unabated as usual. However, in a relief, major banks were spared from antitrust proceedings over their alleged collusion in the credit-derivatives market owing to lack of evidence.
(Read the last Bank Stock Roundup for Dec 4, 2015)
Recap of the Week’s Major Developments:
1. At the Goldman Sachs US Financial Services Conference in New York, the two banking giants – Citigroup Inc. C and Bank of America Corp. BAC – provided bleak trading revenue outlooks for fourth-quarter 2015. This implied that the earnings picture too, will remain subdued in the fourth quarter (read more: Citigroup, BofA Anticipate Q4 Trading Revenues to Plunge).
2. JPMorgan Chase & Co. JPM is in advanced discussions with the U.S. Securities and Exchange Commission (“SEC”) to resolve an investigation over the sale and use of proprietary products for its private-banking clients. The news was first reported by Bloomberg (read more: JPMorgan to Soon End 'Product Steering' Probe for $150M?).
3. Issues related to the financial crisis continue to haunt major banks. Citigroup, yet again, has been hit with a lawsuit by a collapsed hedge fund – Millennium Global Emerging Credit Fund Ltd. The news, first reported by Bloomberg, stated that the company has been accused of undervaluing assets when it closed out trades during peak of the 2008 crisis, citing court papers filed in October (read more: Citi Hit with Suit over Charges Related to Trades in 2008).
4. In a big relief to major global banks, the European Commission closed antitrust proceedings over alleged collusion in the credit-derivatives market owing to lack of evidence. 13 banks were involved, namely BofA, Citigroup, The Goldman Sachs Group, Inc., JPMorgan along with the Bear Stearns Co. business that it purchased, Morgan Stanley, Barclays PLC, The Royal Bank of Scotland Group plc, UBS Group AG, HSBC Holdings plc, BNP Paribas SA and Credit Suisse Group AG and Deutsche Bank AG (read more: Banks Get Rid of EU Charges of Colluding in the CDS Market).
5. Citigroup is likely to come under the direct supervision of European Central Bank (“ECB”), following the Wall Street giant’s proposed merger of the U.K.-based Citibank International Limited into Dublin-based Citibank Europe Plc. The merger, likely to take place on Jan 1, 2016, received approval from the Irish High Court in November (read more: Citigroup May Come under Direct ECB Oversight).
6. The Fed has approved BofA’s revised capital plan. The approval was announced through a press release wherein the Fed said that the company’s “progress in remediating the identified deficiencies in its capital planning processes” led to the sanction of the plan.
Notably, at the Comprehensive Capital Analysis and Review (“CCAR”) in Mar 2015, the Fed had highlighted certain loopholes in BofA’s capital planning processes, including deficiency in loss & revenue modeling practices and internal controls. As such, the capital plan had received a conditional approval from the Fed, with the company required to submit a revised plan before Sep 30.
Though the Fed gave its consent, the regulator warned that the lender “must continue to make steady, demonstrable progress prior to the 2016 CCAR cycle” toward risk management and capital planning.
Nonetheless, we expect the approval will likely help BofA delight its shareholders with a dividend increase, following results of the 2016 stress tests. Notably, the bank has maintained its dividend at 5 cents per share since the beginning of 2014.
Price Performance
The overall performance of banking stocks remained weak. Here is how the seven major stocks performed:
|
Company |
Last Week |
6 months |
|
JPM |
-3.4% |
-2.6% |
|
BAC |
-3.4% |
-1.6% |
|
WFC |
-2.4% |
-3.7% |
|
C |
-4.4% |
-7.5% |
|
COF |
-4.7% |
-12.2% |
|
USB |
-2.6% |
-2.5% |
|
PNC |
-2.9% |
-3.8% |
In the last five trading sessions, Capital One Financial Corp. COF and Citigroup were major losers, with their shares decreasing 4.7% and 4.4%, respectively. Both JPMorgan and BofA fell 3.4%.
Over the last six months, Capital One and Citigroup were major losers, too. The shares declined 12.2% for Capital One and 7.5% for Citigroup. Moreover, The PNC Financial Services Group, Inc. PNC fell 3.8%.
What's Next in the Banking Universe?
In the next five trading days, all eyes will be on the Fed’s policy meeting to be held during Dec 15–16. So, banking stocks are expected to rise on the back of positive investor sentiments. However, any unprecedented global or domestic event could act as a dampener.
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