Over the last four trading days, banking stocks put up a lackluster show. Soft trading revenue outlook provided by some of the major banks hints at a bleak Q2 earnings picture. Additionally, softer loan demand is expected to add to these woes.
Further, worries surrounding Italy’s rising debt yields and consequent concerns over the Eurozone’s financial stability are dealing a blow to U.S. bank stocks. The rising political uncertainty has put pressure on the European markets and cast a pall over Euro projects as well. Therefore, increasing demand for safe assets, like the U.S. debt, has brought down the U.S. 10-year Treasury yields, triggering losses for banks in the United States.
On the other side, the Federal Reserve, along with other key financial regulatory bodies, took another step toward easing the stringent regulations related to the Volcker Rule imposed on banks post 2008 financial crisis. The three-member Federal Reserve Board unanimously approved the proposals aimed at simplifying and improving the Volcker Rule. This might help banks strengthen lending as these firms are likely to benefit from better liquidity position.
Nevertheless, coming to company-specific news, litigations and probes pertaining to the past shoddy activities dominated headlines. The law enforcement agencies are also on track, working toward resolving such issues and avoiding lengthy litigations.
(Read: Bank Stock Roundup for the Week Ending May 18, 2018)
Important Developments of the Week
1. At the 2018 Deutsche Bank Eighth Annual Global Financial Services Conference in New York, top executives of Bank of America BAC, JPMorgan JPM, Wells Fargo WFC and Morgan Stanley MS hinted at the companies’ Q2 outlook.
At the conference, Brian Moynihan — chief executive officer at BofA — stated that the company’s trading income is projected to be flat year over year in the second quarter. However, Moynihan expects things to turn around, depending on the bank’s activities in June.
Furthermore, per Wells Fargo’s CFO, John Shrewsberry, the ongoing review process of the bank related to the sales practices issues is "virtually complete" and the company has shared all relevant information with investors. Commenting on commercial loan, the bank foresees demand to remain below expectations for 2018, despite anticipated business optimism following the U.S. tax reform.
At the same conference, JPMorgan’s head of corporate and investment banking — Daniel Pinto — announced the company’s latest outlook for the April-June quarter. “Overall, markets revenue as we see it today will be flat year on year,” Pinto said.
Meanwhile, concerns have increased for investment bank — Morgan Stanley — thanks to the challenging business conditions in the ongoing quarter, which are affecting its wealth management unit. This unit, particularly, generates half of the bank's revenues. (Read more: Big Banks Forecast Lackluster Q2 Guidance, Muted Trading)
2. Wells Fargo has received the judge’s approval for the settlement of $142 million worth class-action lawsuit related to the 3.5 million fake accounts scandal. However, the customers still have scope for filing claims if they feel having been wronged by the bank.
The class-action lawsuit was an outcome of the bank’s undue pressure on its employees to achieve extensive sales targets, which led them to open unauthorized savings accounts, credit cards and lines of credit from May 2002 to April 2017.
The settlement would entertain claims of those clients who have been charged fees on the accounts that were opened without their consent. Also, refunds would be made to customers whose credit scores have been impacted by Wells Fargo’s improper practice and led to higher borrowing costs for them. Lastly, the remaining amount will be distributed equally among the claimants.
3. According to Australia’s securities regulator and competition watchdog, Citigroup C, along with Deutsche Bank AG DB and Australia & New Zealand Banking Group Ltd., will be sued with criminal charges for alleged “cartel” conduct over the sale of ANZ Bank’s shares worth $1.9 billion in Australia in 2015.
In August 2015, Citigroup, Deutsche Bank and JPMorgan were the underwriters for the institutional placement of nearly 80.8 million of ANZ Banks’ shares, which was conducted to raise capital in order to meet regulatory requirements.
However, there were allegations that the joint underwriters, as part of their underwriting commitment, created a cartel arrangement, and hence reached an understanding for the disposal of 25.5 million shares that they had absorbed as part of the placement. The 25 million shares represented less than 1% of ANZ Bank’s outstanding shares at that time.
Price Performance
Here is how the seven major stocks performed:
|
Company |
Last Week |
6 months |
|
JPM |
-3.3% |
3.4% |
|
BAC |
-3.3% |
3.9% |
|
WFC |
-1.7% |
-3.1% |
|
C |
-2.6% |
-10.9% |
|
COF |
-0.9% |
3.1% |
|
USB |
-1.1% |
-8.3% |
|
PNC |
-3.2% |
3.0% |
Over the last four trading sessions, JPMorgan and BofA were the major losers, with their shares declining 3.3%. Moreover, shares of Citigroup and PNC Financial depreciated 2.6% and 3.2%, respectively.
JPMorgan and BofA have been the best performers, over the past six months, with the stocks appreciating 3.4% and 3.9%, respectively. However, shares of Citigroup declined 10.9%.
What’s Next?
Over the next five trading days, bank stocks are expected to continue performing in a similar manner unless any unforeseen incident occurs.
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