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Bank Stock Roundup: Optimism Continues on Rate Hike, BofA in Focus
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Over the last five trading days, major banks’ rally continued with expected benefits from the recent interest rate hike. The rate hike will aid top-line expansion for banks, making way for improved results in the quarters ahead. An upsurge in interest income is expected for banks and the margin pressure is likely to ease to some extent. Further, domestic economic growth will support their financials.
Further, following the Federal Reserve’s anticipation of increasing interest rates thrice in 2017, the U.S. 30-year fixed-rate mortgages climbed to their highest levels since Apr 2014 to 4.30%. Moreover, yields on 10-year Treasuries have increased 10 basis points.
However, homeowners, seeking lower rates for refinancing, are definitely big-time losers. Increase in mortgage rates will limit refinancing activity. Data reflects that the U.S. economy is getting better. Though higher borrowing costs is likely to disappoint homebuyers, an improving job market might lead to rise in housing demand.
Meanwhile, banks remained focused on strategies to boost profitability through restructuring and acquisitions, in the last five trading days.
1. Restructuring activities continue for banks. Bank of America Corporation (BAC - Free Report) is finally selling its last remaining international credit card business. The bank has announced a deal to offload its U.K. consumer credit card operations – MBNA Ltd. – to Lloyds Banking Group plc (LYG) for $2.35 billion. The transaction concludes BofA’s efforts to exit all international consumer card operations as part of its strategy to focus on core domestic business.
The deal, likely to close by the first half of 2017, is subject to regulatory approvals. Upon closure, the transaction is anticipated to result in a marginal one-time after-tax gain for BofA’s All Other division. Further, it will likely lower non-core assets in the division by approximately $8.7 billion. Nonetheless, the deal will not impact the company’s global commercial card business (read more: BofA Inks Deal to Sell U.K. Credit Card Business for $2.4B).
2. Amid troubled times for Wells Fargo & Company (WFC - Free Report) , following the bank’s $185-million settlement in Sep 2016 to resolve regulators’ claims of illegally opening millions of unauthorized accounts, the U.S. lender recorded a disappointing retail banking customer activity for Nov 2016. The bank experienced a year-over-year plunge of 41% in new account openings, along with a sequential fall of 9%. The decline came as a post-scandal impact of the sales malpractices.
In addition, customer-initiated account closures rose modestly by 2% year over year, however declined 13% from October. Also, the bank noted that survey results of customers’ satisfaction, with their most recent visits were 74.8%, down from 77.7% in Nov 2015 (read more: Wells Fargo November Account Opening Plunges 41%).
3. Fifth Third Bancorp (FITB - Free Report) increased its quarterly common stock dividend by about 8% to 14 cents per share. The dividend will be paid on Jan 17, 2017 to shareholders of record as of Dec 30, 2016. Fifth Third’s robust business model reflects the company’s commitment toward returning value to shareholders, with its solid cash generation capabilities. The action followed the Fed’s approval of a dividend hike and stock buyback, after the completion of stress tests to assess the bank's financial position (read more: Fifth Third Rewards Shareholders with 8% Dividend Hike).
Price Performance
Here is how the seven major stocks performed:
Company
Last Week
6 months
JPM
2.3%
38.6%
BAC
-0.5%
65.6%
WFC
0.7%
18.7%
C
1.2%
41.7%
COF
-0.5%
39.5%
USB
0.8%
26.1%
PNC
2.2%
38.5%
In the last five trading sessions, JPMorgan Chase & Co. (JPM - Free Report) and The PNC Financial Services Group, Inc. (PNC - Free Report) were the major gainers, with their shares increasing 2.3% and 2.2%, respectively. Moreover, Citigroup Inc.’s (C - Free Report) shares inched up 1.2%.
BofA and Citigroup were the best performers in the last six months, with their shares surging 65.6% and 41.7%, respectively. Also, Capital One Financial Corp.’s (COF - Free Report) shares jumped 39.5%.
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 unforeseen event.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>
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Bank Stock Roundup: Optimism Continues on Rate Hike, BofA in Focus
Over the last five trading days, major banks’ rally continued with expected benefits from the recent interest rate hike. The rate hike will aid top-line expansion for banks, making way for improved results in the quarters ahead. An upsurge in interest income is expected for banks and the margin pressure is likely to ease to some extent. Further, domestic economic growth will support their financials.
Further, following the Federal Reserve’s anticipation of increasing interest rates thrice in 2017, the U.S. 30-year fixed-rate mortgages climbed to their highest levels since Apr 2014 to 4.30%. Moreover, yields on 10-year Treasuries have increased 10 basis points.
However, homeowners, seeking lower rates for refinancing, are definitely big-time losers. Increase in mortgage rates will limit refinancing activity. Data reflects that the U.S. economy is getting better. Though higher borrowing costs is likely to disappoint homebuyers, an improving job market might lead to rise in housing demand.
Meanwhile, banks remained focused on strategies to boost profitability through restructuring and acquisitions, in the last five trading days.
(Read: Bank Stock Roundup for the week ending Dec 16, 2016)
Important Developments of the Week
1. Restructuring activities continue for banks. Bank of America Corporation (BAC - Free Report) is finally selling its last remaining international credit card business. The bank has announced a deal to offload its U.K. consumer credit card operations – MBNA Ltd. – to Lloyds Banking Group plc (LYG) for $2.35 billion. The transaction concludes BofA’s efforts to exit all international consumer card operations as part of its strategy to focus on core domestic business.
The deal, likely to close by the first half of 2017, is subject to regulatory approvals. Upon closure, the transaction is anticipated to result in a marginal one-time after-tax gain for BofA’s All Other division. Further, it will likely lower non-core assets in the division by approximately $8.7 billion. Nonetheless, the deal will not impact the company’s global commercial card business (read more: BofA Inks Deal to Sell U.K. Credit Card Business for $2.4B).
2. Amid troubled times for Wells Fargo & Company (WFC - Free Report) , following the bank’s $185-million settlement in Sep 2016 to resolve regulators’ claims of illegally opening millions of unauthorized accounts, the U.S. lender recorded a disappointing retail banking customer activity for Nov 2016. The bank experienced a year-over-year plunge of 41% in new account openings, along with a sequential fall of 9%. The decline came as a post-scandal impact of the sales malpractices.
In addition, customer-initiated account closures rose modestly by 2% year over year, however declined 13% from October. Also, the bank noted that survey results of customers’ satisfaction, with their most recent visits were 74.8%, down from 77.7% in Nov 2015 (read more: Wells Fargo November Account Opening Plunges 41%).
3. Fifth Third Bancorp (FITB - Free Report) increased its quarterly common stock dividend by about 8% to 14 cents per share. The dividend will be paid on Jan 17, 2017 to shareholders of record as of Dec 30, 2016. Fifth Third’s robust business model reflects the company’s commitment toward returning value to shareholders, with its solid cash generation capabilities. The action followed the Fed’s approval of a dividend hike and stock buyback, after the completion of stress tests to assess the bank's financial position (read more: Fifth Third Rewards Shareholders with 8% Dividend Hike).
Price Performance
Here is how the seven major stocks performed:
Company
Last Week
6 months
JPM
2.3%
38.6%
BAC
-0.5%
65.6%
WFC
0.7%
18.7%
C
1.2%
41.7%
COF
-0.5%
39.5%
USB
0.8%
26.1%
PNC
2.2%
38.5%
In the last five trading sessions, JPMorgan Chase & Co. (JPM - Free Report) and The PNC Financial Services Group, Inc. (PNC - Free Report) were the major gainers, with their shares increasing 2.3% and 2.2%, respectively. Moreover, Citigroup Inc.’s (C - Free Report) shares inched up 1.2%.
BofA and Citigroup were the best performers in the last six months, with their shares surging 65.6% and 41.7%, respectively. Also, Capital One Financial Corp.’s (COF - Free Report) shares jumped 39.5%.
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 unforeseen event.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>