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Bank Stock Roundup: Markets in Correction Mode, Wells Fargo Dominates Headlines

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Stock market correction seems to be in the offing as over the last five trading days extreme volatility was witnessed. The banking stocks are not untouched by this.

It all started last Friday when January job and wage data was released. Needless to say, wages grew at the fastest pace last month in more than eight-and-a-half years. Though this indicates an improving economy, it raised fears of rise in inflation, in turn, reinforcing assumptions of a more aggressive stance by the Fed in hiking rates.

Additionally, a two-year budget deal announced by top senators will likely further strengthen the economy, thus giving the Fed all the more reason to raise rates. This also drove up the bond yields.

While indications of an improving economy and expectations for a more hawkish Fed stance are beneficial for banks on the whole, overall markets seem to be wary of such a scenario.

Coming to company-specific news related to banks, Wells Fargo (WFC - Free Report) dominated the headlines for all the wrong reasons. Its business mishandlings continue to hurt.



(Read: Bank Stock Roundup for the week ending Jan 29, 2018)

Important Developments of the Week

1. Issues related to past misconducts continue to haunt Wells Fargo. The Federal Reserve punished the lender with new sanctions for the recently-revealed malpractices and fake accounts scandal which came into the limelight in September 2016. The bank has been ordered to replace four board directors and not increase its assets position beyond $1.95 trillion (as of Dec 31, 2017). (Read more: Wells Fargo Slapped With New Sanctions, Growth Halted)

As fallout of these actions, Moody’s Investors Service downgraded Well Fargo’s outlook to ‘negative’ from ‘stable.’ Nonetheless, the bank’s ratings were affirmed. (Read more: Moody's Affirms Wells Fargo Ratings, Outlook Down to Negative)

For similar reasons, S&P Global Ratings downgraded the ratings of Wells Fargo and its subsidiaries. However, the rating firm’s outlook for the bank has been affirmed at ‘stable.’ (Read more: S&P Downgrades Wells Fargo Ratings, Stable Outlook Affirmed)

2. Fifth Third Bancorp (FITB - Free Report) announced plans to acquire Coker Capital Advisors through its subsidiary, Fifth Third Securities. Though the deal is subject to regulatory approvals, the bank expects to close it in first-quarter 2018. (Read more: Fifth Third Unit to Acquire Leading Healthcare Advisory Firm)

3. Citigroup (C - Free Report) expects further growth in investment banking revenues in 2018 on the back of improved activity in the emerging markets. In an interview with Reuters, Miguel Azevedo, head of investment banking in the Middle East and Africa said that bond sales, M&As and trading activities are likely to take an upswing in Nigeria, Egypt and the United Arab Emirates. This will likely, in turn, spur the bank’s investment banking revenues. (Read more: Citi Expects Investment Banking to Grow in Emerging Markets)

Price Performance

Here is how the seven major stocks performed:

Company

Last Week

6 months

JPM

-5.6%

16.4%

BAC

-6.9%

20.6%

WFC

-13.5%

6.5%

C

-6.7%

5.2%

COF

-9.2%

8.3%

USB

-7.5%

0.1%

PNC

-5.4%

14.1%

In the last five trading sessions, Wells Fargo and Capital One Financial Corporation (COF - Free Report) were the major losers, with their shares plunging 13.5% and 9.2%, respectively. Further, U.S. Bancorp (USB - Free Report) tanked 7.5%.

Bank of America (BAC - Free Report) and JPMorgan (JPM - Free Report) were the best performers over the last six months, with their stock prices rallying 20.6% and 16.4%, respectively. Also, shares of PNC Financial (PNC - Free Report) rose 14.1%.

What’s Next?

As investors are expected to continue booking profits, banks’ performance is likely to remain volatile over the next five trading days.

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