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Bank Stock Roundup: Rate Hike Brings Optimism, Wells Fargo Still in Focus
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Over the last five trading days, positive speculation regarding the much awaited Federal Reserve rate hike brought optimism for the banking industry. On Wednesday, the Federal Open Market Committee increased the target range for the federal funds rate by 25 basis points to 0.50–0.75%. In addition, signaling confidence in the U.S. economy, the Fed now projects three rate hikes in 2017.
Following this announcement, nearly all banks raised their prime lending rates. Notably, the investors turned to profit booking as the banking stocks have been witnessing a bullish trend since the U.S. presidential election in November.
Nonetheless, banks are now expected to record an increase in interest income, and the margin pressure is likely to ease to some extent. Further, domestic economic growth will support their financials.
Meanwhile, Wells Fargo & Company (WFC - Free Report) continued to be in headlines for its accounting scam related matters. While the company is undertaking measures to change its business practices, such matters are expected to remain concerns in the near-term.
1. Wells Fargo has been hit with restrictions by the U.S. regulators as the bank failed to “adequately remedy” deficiencies in its resolution plan. The plan, better known as “living will”, lays out the strategy for a company’s fast resolution under bankruptcy in the event of failure of the company or severe financial stress. Notably, this turned out to be the second time this year that Wells Fargo flunked in the “living will” assessment. (Read more: Wells Fargo Faces Sanctions on 'Living Will' Deficiencies)
2. It looks like Well Fargo’s accounting scam will continue to trouble it for quite some time. Now, the bank is under the scrutiny of regulators in California and New Jersey for signing up customers for Prudential Financial, Inc. (PRU - Free Report) life policies, without their consent. (Read more: Wells Fargo Under Scrutiny in California, New Jersey).
In addition, the banking giant has been suspended for two years from conducting broker-dealer services in commercial banking and commercial paper, in its own birthplace, San Francisco. Further, the city has barred the bank from securities investments and counterparty/repurchasing agreements for two years. (Read more: Wells Fargo Barred from Hometown Business for Sales Scam).
3. Wells Fargo has scrapped bonuses for brokers for selling loans. Precisely, the brokers who used to convince clients to take out loans including mortgages, securities-backed loans or lines of credit will not be paid bonus.
Wells Fargo’s brokerage arm will keep pay grid unchanged for 2017 accounting most of a broker’s pay, but bonuses for persuading clients to take on loans will be scrapped. Notably, such bonus amount is paid in the form of deferred compensation increasing a broker’s annual pay by thousands of dollars. A percentage of the fees and commissions generated from servicing customer accounts are paid by brokerage grids.
The bank’s move is expected to bring the brokerage in line with the main bank where sales incentives have already been changed. Further, through elimination of bonuses, the bank intends to evade further problems and gain back brokers’ and clients’ belief on the bank.
Further, Wells Fargo has increased the minimum amount of assets in an account for a broker to be paid full compensation. The amount of assets has been raised to $100,000 from $65,000, effective January 2017. The household having less than $100,000 in assets in his account will decrease the broker’s pay by flat 20%. However, brokers will be safeguarded from pay cut from those small households if 75% of their clients account in $250,000 or more in assets.
Further, brokers have been offered awards for transferring clients also. Precisely, transferring clients to local financial relationship advisers, brokers will be paid $2,000 per household and $100,000 in total. Further, more will be paid who have 65% or more of their households with more than $250,000 in assets.
On the other side, the Financial Industry Regulatory Authority (FINRA), the brokerage industry’s self-regulator, is investigating the scandal’s impact on the bank’s brokerage unit. Notably, the brokerage employees who have been laid off by Wells Fargo have been contacted by FINRA to discuss the reasons of their retrenchment. The regulators want to be sure whether these employees’ dismissals relate to scandal or mishandled by Wells Fargo.
4. Fifth Third Bancorp (FITB - Free Report) is making an equity investment in San Francisco-based startup online lender, ApplePie Capital, to seek new opportunities in the lending space. This was reported by Wall Street Journal. (Read more: Fifth Third Invests in Fintech Startup to Grow Lending)
Price Performance
Here is how the seven major stocks performed:
Company
Last Week
6 months
JPM
0.6%
38.8%
BAC
0.3%
73.6%
WFC
-3.4%
18.0%
C
0.3%
43.4%
COF
-0.1%
39.8%
USB
-0.1%
26.7%
PNC
0.5%
37.3%
In the last five trading sessions, JPMorgan Chase & Co. (JPM - Free Report) and The PNC Financial Services Group, Inc. (PNC - Free Report) were the top gainers, with their shares increasing 0.6% and 0.5%, respectively. On the other hand, Wells Fargo shares fell 3.4%.
Over the last six months, Bank of America Corp. (BAC - Free Report) and Citigroup Inc. (C - Free Report) were the best performers, with their shares surging 73.6% and 43.4%, respectively. Also, shares of Capital One Financial Corp. (COF - Free Report) jumped 39.8%.
What's Next in the Banking Space?
Over the next five trading days, banking stocks are likely to perform in the similar manner, unless there is any unforeseenevent.
Now See Our Private Investment Ideas
While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>
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Bank Stock Roundup: Rate Hike Brings Optimism, Wells Fargo Still in Focus
Over the last five trading days, positive speculation regarding the much awaited Federal Reserve rate hike brought optimism for the banking industry. On Wednesday, the Federal Open Market Committee increased the target range for the federal funds rate by 25 basis points to 0.50–0.75%. In addition, signaling confidence in the U.S. economy, the Fed now projects three rate hikes in 2017.
Following this announcement, nearly all banks raised their prime lending rates. Notably, the investors turned to profit booking as the banking stocks have been witnessing a bullish trend since the U.S. presidential election in November.
Nonetheless, banks are now expected to record an increase in interest income, and the margin pressure is likely to ease to some extent. Further, domestic economic growth will support their financials.
Meanwhile, Wells Fargo & Company (WFC - Free Report) continued to be in headlines for its accounting scam related matters. While the company is undertaking measures to change its business practices, such matters are expected to remain concerns in the near-term.
(Read: Bank Stock Roundup for the week ending Dec 9, 2016)
Banks - Major Regional Industry 5YR % Return
Banks - Major Regional Industry 5YR % Return
Important Developments of the Week
1. Wells Fargo has been hit with restrictions by the U.S. regulators as the bank failed to “adequately remedy” deficiencies in its resolution plan. The plan, better known as “living will”, lays out the strategy for a company’s fast resolution under bankruptcy in the event of failure of the company or severe financial stress. Notably, this turned out to be the second time this year that Wells Fargo flunked in the “living will” assessment. (Read more: Wells Fargo Faces Sanctions on 'Living Will' Deficiencies)
2. It looks like Well Fargo’s accounting scam will continue to trouble it for quite some time. Now, the bank is under the scrutiny of regulators in California and New Jersey for signing up customers for Prudential Financial, Inc. (PRU - Free Report) life policies, without their consent. (Read more: Wells Fargo Under Scrutiny in California, New Jersey).
In addition, the banking giant has been suspended for two years from conducting broker-dealer services in commercial banking and commercial paper, in its own birthplace, San Francisco. Further, the city has barred the bank from securities investments and counterparty/repurchasing agreements for two years. (Read more: Wells Fargo Barred from Hometown Business for Sales Scam).
3. Wells Fargo has scrapped bonuses for brokers for selling loans. Precisely, the brokers who used to convince clients to take out loans including mortgages, securities-backed loans or lines of credit will not be paid bonus.
Wells Fargo’s brokerage arm will keep pay grid unchanged for 2017 accounting most of a broker’s pay, but bonuses for persuading clients to take on loans will be scrapped. Notably, such bonus amount is paid in the form of deferred compensation increasing a broker’s annual pay by thousands of dollars. A percentage of the fees and commissions generated from servicing customer accounts are paid by brokerage grids.
The bank’s move is expected to bring the brokerage in line with the main bank where sales incentives have already been changed. Further, through elimination of bonuses, the bank intends to evade further problems and gain back brokers’ and clients’ belief on the bank.
Further, Wells Fargo has increased the minimum amount of assets in an account for a broker to be paid full compensation. The amount of assets has been raised to $100,000 from $65,000, effective January 2017. The household having less than $100,000 in assets in his account will decrease the broker’s pay by flat 20%. However, brokers will be safeguarded from pay cut from those small households if 75% of their clients account in $250,000 or more in assets.
Further, brokers have been offered awards for transferring clients also. Precisely, transferring clients to local financial relationship advisers, brokers will be paid $2,000 per household and $100,000 in total. Further, more will be paid who have 65% or more of their households with more than $250,000 in assets.
On the other side, the Financial Industry Regulatory Authority (FINRA), the brokerage industry’s self-regulator, is investigating the scandal’s impact on the bank’s brokerage unit. Notably, the brokerage employees who have been laid off by Wells Fargo have been contacted by FINRA to discuss the reasons of their retrenchment. The regulators want to be sure whether these employees’ dismissals relate to scandal or mishandled by Wells Fargo.
4. Fifth Third Bancorp (FITB - Free Report) is making an equity investment in San Francisco-based startup online lender, ApplePie Capital, to seek new opportunities in the lending space. This was reported by Wall Street Journal. (Read more: Fifth Third Invests in Fintech Startup to Grow Lending)
Price Performance
Here is how the seven major stocks performed:
Company
Last Week
6 months
JPM
0.6%
38.8%
BAC
0.3%
73.6%
WFC
-3.4%
18.0%
C
0.3%
43.4%
COF
-0.1%
39.8%
USB
-0.1%
26.7%
PNC
0.5%
37.3%
In the last five trading sessions, JPMorgan Chase & Co. (JPM - Free Report) and The PNC Financial Services Group, Inc. (PNC - Free Report) were the top gainers, with their shares increasing 0.6% and 0.5%, respectively. On the other hand, Wells Fargo shares fell 3.4%.
Over the last six months, Bank of America Corp. (BAC - Free Report) and Citigroup Inc. (C - Free Report) were the best performers, with their shares surging 73.6% and 43.4%, respectively. Also, shares of Capital One Financial Corp. (COF - Free Report) jumped 39.8%.
What's Next in the Banking Space?
Over the next five trading days, banking stocks are likely to perform in the similar manner, unless there is any unforeseenevent.
Now See Our Private Investment Ideas
While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>